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PaulS's picture

IEA: Demand for oil threatens recovery

Fancy that, some commentators are waking up to the facts of life:

Demand for oil will hit an all-time high this year, the International Energy Agency has forecast.

The agency also warned that increased global consumption, fuelled by a near-20 per cent leap in demand in China, could choke off economic recovery in the UK and continental Europe.

The energy adviser estimated that oil demand worldwide would hit 86.6 million barrels of oil per day this year — 2 per cent higher than last year and an increase of 1.67 million barrels a day.

Demand is expected to just exceed the 86.5 million barrels a day consumed in 2007, the last full year before the onset of the global economic crisis.

The forecast is an upward revision by 100,000 barrels a day compared with the agency’s estimates last month.

The agency said that resurgent demand showed the two-speed nature of the global economic recovery from recession and highlighted the effect on the oil price, which hit an 18-month high of more than $87 a barrel last week.

The agency said in its report: “Ultimately things might turn messy for producers if $80-$100 per barrel is merely seen as the new $60-$80, stunting economic recovery while prompting resurgent non-oil and non-Opec supply investment.

“A recovery in oil demand is moving apace. The return of economic growth and hence oil demand growth is fuelling the increase.”

Higher prices allied with still-tight credit conditions “could stall OECD economic recovery” the agency said, adding that recent higher prices could be “sustained, raising anew concerns about the impact on the global economy”.

It continued: “Underlying concerns in some quarters that oil markets are overheated remain, setting the stage for a sudden reversal of fortune.”

On the activity of refineries, the agency said: “While China, India and Russia all posted record highs in February, European throughputs fell to their lowest level in 17 years.”

That raised doubts over “the sustainability of Europe’s petrochemical-led, manufacturing-based, export-oriented economic recovery,” it said. “In addition, the thorny and unsettled issue regarding Greece’s potential rescue from default and eventual contagion to other southern European countries has introduced a further element of economic uncertainty.”

Chinese demand, for instance, including refinery output and imports of refined products, rose year-on-year by 19.9 per cent in February.

In comparison, oil stocks in the 30 industrialised, mainly Western economies that are members of the OECD rose to about 60 days by the end of February — a period in which inventories normally fall because of increased winter demand.

While China’s refinery output is forecast to jump by 900,000 barrels per day this year, equivalent output in OECD countries is forecast to fall by 440,000 barrels a day.

The price of Brent crude last night was down 48 cents at $84.30, its fifth consecutive daily fall as analysts suggested the market was consolidating its gains this month.

Peter Hitchens, oils analyst at Panmure Gordon, said that key data in the report showed that the growing demand was being serviced by companies outside the Saudi Arabia-led Opec consortium of oil-producing countries.

“While Opec has cut production 200,000 barrels a day to 28.8 million this year, the figures show that production in non-Opec provinces like Canada, Russia and the North Sea have been stimulated by high prices and are reckoned to have increased production by 220,000 barrel per day,” he said.

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