IEA sees crude supply ahead of demand despite high oil prices

Sep 09, 2004 02:00 AM

Despite continued high oil prices, global crude supplies are running ahead of demand for the first time in many months, the International Energy Agency said in its monthly oil report.
Oil prices surged to almost $ 50 a barrel in August on fears that shrinking spare capacity wouldn't be enough to cover potential supply shortfalls from Iraq, Russia, Venezuela and other key producers in the face of current strong demand.

But while demand continues to rise, actual global oil supplies are increasing and stocks are building.
"Our position, while not underestimating the realities of limited spare production and refining capacity, argues that today's market is well supplied with crude," the Paris-based energy watchdog said in its report. "What is clear for now is that supply is running ahead of demand and stocks are building," the IEA said.

Output in August from OPEC increased by 410,000 bpd on the month to 29.3 mm bpd, the IEA said. This takes global oil supply to 83.6 mm bpd in August -- anincrease of 300,000 bpd on July.
OPEC's biggest producer, Saudi Arabia, pumped an additional 300,000 bpd in August against July, bringing the Kingdom's output to 9.5 mm bpd. Iran, UAE and Nigeria also increased crude output by a total of 150,000 bpd, partially compensating for a fall in Iraq's supplies due to export disruptions in the south of the country.

Despite the restart of Iraq's northern export pipeline to Turkey's Ceyhan, net production -- which includes exports and domestic consumption -- fell 100,000 bpd in August to 1.79 mm bpd following attacks on southern export infrastructure. Iraq's gross well-head production was unchanged at 1.97 mm bpd.
Meanwhile, although OPEC's sustainable capacity still remains tight at only an additional 300,000 bpd for the 10 members excluding Iraq, the OPEC-10 can add another 1.85 mm bpd surge output in the short term.
"Such capacity can be activated fairly quickly but is unlikely to be sustainable for more than three months, for reasons of best reservoirpractice, a desire to limit gas flaring, or for other logistical reasons," the IEA said.

Some of the surge capacity includes capacity additions, mostly in Saudi Arabia, that will be in place by the end of the year and continuing into the early part of 2005. In theory, Iraq can supply up to 2.5 mm bpd, but production increase plans have been so far thwarted by organized and persistent sabotage, the IEA added.
Output from non-OPEC producers fell 150,000 bpd in August driven mostly by summer maintenance on Norwegian and Alaskan fields. Although this is the second month running that non-OPEC supplies have fallen, non-OPEC production in August is up by 1.4 mm bpd against August last year, and is expected to increase another 1.25 mm bpd in 2005.

Meanwhile, Russian oil production reached 9.35 mm bpd in August -- a slight increase on July and a 675,000 bpd rise on last August regardless of problems at Russian oil major Yukos.
"The government has been at pains to insist that Russian production and exportvolumes will not be affected by the Yukos case, raising the likelihood that it would intervene to ensure Russia's reputation as a reliable source of supply," the IEA said.

The IEA also lowered the "call-on-OPEC plus stock change" for the peak demand fourth quarter by 100,000 bpd to 28.3 mm bpd. This puts OPEC's current production 1 mm bpd over the call on OPEC for that quarter and implies a stock build if the group keeps producing at current levels. The IEA kept the call on OPEC for 2004 unchanged at 27.6 mm bpd and revised down the 2005 call by 100,000 bpd to 27.6 mm bpd.
Despite the restart of Iraq's northern export pipeline to Turkey's Ceyhan, net production -- which includes exports and domestic consumption -- fell 100,000 bpd in August to 1.79 mm bpd following attacks on southern export infrastructure. Iraq's gross well-head production was unchanged at 1.97 mm bpd.

Table of IEA estimates of OPEC supply, call-on-OPEC
IEA estimate of OPEC supply (in millions of barrels a day)
Aug July Quota From Aug 1
Saudi Arabia 9.50 9.20 8.45
Iran 3.95 3.90 3.82
UAE 2.48 2.43 2.27
Kuwait 2.37 2.35 2.09
Qatar 0.80 0.79 0.67
Nigeria 2.45 2.40 2.14
Libya 1.59 1.58 1.39
Algeria 1.23 1.22 0.83
Venezuela 2.22 2.21 2.99
Indonesia 0.95 0.95 1.35

TOTAL-10 27.53 27.02 26.00
Iraq 1.79 1.89

TOTAL-11 -a 29.32 28.91

a. Numbers may not add up due to rounding.

IEA call-on-OPEC estimates (in millions of barrels a day)

Revision Call To Call
2005 27.6 -0.1
1Q '05 28.1 -0.1
2004 27.6 Unch
3Q '04 27.1 +0.10
4Q '04 28.3 -0.10

(IEA revisions compared with earlier report.)

Source: Dow Jones
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