LONDON, Aug 12: The International Energy Agency (IEA) in its latest report issued on Tuesday said the fundamentals of the oil market are easing because the world demand for the crude is slowing down considerably at a time when Opec production took a record upswing in recent weeks.
In response to the IAE’s report oil prices dropped almost $35 a barrel below a record high of over $147 a barrel quoted in July, reaching $113.50 a barrel on Tuesday, the lowest level since late April.
The highlights of the report are:
* Crude prices had fallen $30/bbl from mid-July highs by early August on increased supplies, weaker OECD demand and as the first US Gulf hurricanes passed without causing damage. Currently, neither the recent shut-down of the Baku-Tblisi-Ceyhan (BTC) pipeline, nor military clashes in the Caucasus have materially affected prices.
* OECD oil stocks fell by 15.3 mb in June to 2,579 mb, confirming the near absence of the usual 0.9 mb/d 2Q stockbuild. Weak demand kept OECD forward demand cover above average at 53.4 days. Preliminary July data for the US, Japan and the EU-16 show a 30mb stockbuild.
* Global oil supply increased by 890 kb/d in July to 87.8 mb/d. Norway, Canada, Argentina and Brazil underpinned non-Opec growth of 520 kb/d, amid a lull in seasonal maintenance elsewhere. Growth in non-Opec output now averages 455 kb/d for 2008 and 665 kb/d for 2009, after 425 kb/d in 2007.
* Opec July crude supplies rose by 145 kb/d to 32.8 mb/d. Nigeria, Saudi Arabia and Iran all saw higher output, although over 0.5 mb/d remains shuttered in Nigeria. Effective Opec spare capacity is 1.5 mb/d, but should rise by end-2008 and through 2009.
* Global oil product demand for 2008 remains unchanged at 86.9 mb/d (+0.9% or 0.8 mb/d versus 2007). Demand in 2009 is nudged up 70 kb/d to 87.8 mb/d (+1.1% or 0.9 mb/d versus 2008). Growth is driven by projected non-OECD demand, largely unchanged at 38.3 mb/d in 2008 and 39.7 mb/d in 2009.
* Global refinery crude throughput averaged 75.0 mb/d in July, 0.1 mb/d up versus June. Lower OECD crude run estimates on still-weak US refining margins offset upward revisions to China, after its record June throughput.
“High prices are beginning to play a central role in determining demand, at least for the OECD countries,” the IEA said as consumption is contracting in the US and Europe – with sharp falls in Italy and Spain – but is still growing in Japan.
The IEA said that some of the demand in rich countries will be lost for ever, particularly in the US. “Even if retail prices ease, it seems unlikely that motorists who have purchased smaller cars will revert to gas-guzzling vehicles,” it said.
But demand growth in emerging countries remained strong, with Chinese consumption rising above 8m b/d for the first time in June, hitting 8.3m b/d.