London: Oil demand will rise more slowly than expected next year as economic growth falters, pushing up stockpiles of fuel worldwide and offering some relief to consumers facing high prices.
The West’s energy watchdog, the International Energy Agency (IEA), said on Friday it had cut its estimates of oil use worldwide for several years, trimming its 2013 demand forecast by 400,000 barrels per day (bpd) in the light of a “worrying slowdown” in global economic activity.
“Lower economic growth is feeding through to slower oil demand all round,” said David Fyfe, head of the IEA’s markets division. “Global inventories have risen, and the oil market looks comfortably supplied.”
The IEA’s monthly market report on Friday echoed pessimistic forecasts this week by the US government and the Organization of the Petroleum Exporting Countries (OPEC).
The three top energy market forecasters all say output of crude oil has exceeded demand by a wide margin in the first half of this year, filling up stocks of oil and offering a sizeable cushion to cope with any unexpected shock to supplies.
This should help balance the impact on oil prices of political tensions such as the stand-off between the West and Iran over Tehran’s nuclear programme.
“The significant stock builds that occurred in the first half of 2012 will help relieve global oil markets in the second half,” the US government’s Energy Information (EIA)Administration said.
The EIA expects oil inventories in the developed industrialised economies to rise to 2.62 billion barrels, or 57 days of forward cover by the end of this year, “which is among the highest end-of-year levels in the last decade because of the decline in OECD consumption”.
OPEC, which supplies more than a third of the world’s oil, says it has been pumping more than 2 million bpd more oil than needed for the last few months, filling up tanks worldwide.
The producers’ group said in its report that economic slowdown could depress oil demand growth further.
“The gloomy picture could reduce the world oil demand growth forecast by 20 percent next year,” OPEC said.
But security of supply is still a nagging worry in oil markets.
“The geopolitical dimension is likely to continue to provide something of a floor for prices. The issue of Iran will likely continue to weigh heavy on the market through the second half of 2012,” the IEA said in its monthly report.
“Moreover, there is a risk that recent progress in restoring output from Libya, Iraq and Nigeria could be jeopardised if recent political and civil tensions worsen.”
Oil prices plunged below $90 a barrel in June after Saudi Arabia stepped in to raise production when Iranian exports fell due to Western sanctions.
North Sea Brent crude oil has since recovered to above $110, supported by Iranian tensions and investors’ hopes for new money printing programmes from global central banks.
But supply and demand fundamentals of the market are weak.
The IEA said it had revised its forecast for oil demand growth in 2013 down by 150,000 bpd to 830,000 bpd, below the growth of 870,000 bpd expected in 2012.
“The latest (Chinese) data reveals a sharp deceleration in momentum compared to the double-digit expansions seen at the beginning of 2011,” the IEA said.
On the supply side, global oil production in July stood 2.6 million bpd higher than a year ago, with 80 percent of the increase deriving from OPEC, it said.
The agency said exports of Iranian oil in July fell to multi-year lows of 1 million bpd from 1.74 million in June, but it added that sales of Iranian oil to major consumers could start picking up this month.
“There is scope for imports from Iran to recover modestly from September onwards, albeit we retain our existing assumption that around 1 million bpd of Iranian oil may struggle to find buyers in the second half of 2012.”
“An observed decline of 14 million barrels in Iranian floating storage in July also suggests that some extra oil is en route to customers for August/September delivery,” the IEA added.
