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World oil glut raises risk of recovery ‘crunch’: IEA
(AFP) / 11 April 2009
PARIS – The world is awash with oil and the glut is crimping investment in new fields for the day when demand pulls out of a 'relentless' plunge, the IEA said on Friday.
The International Energy Agency cut back radically its estimate for world demand this year because it no longer believed economic activity might pick up in the second half.
“For the fourth time since last October, we have slashed the economic assumptions that underpin our oil demand forecasts,” the IEA said.
Chinese demand, it noted, fell 6.9 percent in January-February on a 12-month basis, revealing “fresh evidence” of slowdown.
IEA chief oil analyst David Fyfe told AFP that while the Chinese economy should grow about 6.5 percent in 2009, its demand for oil will contract this year on an annualised basis for the first time since 1990.
Fyfe noted that there had been a “bounce” in the oil price above 50 dollars a barrel for the first time for four months, “but our indications of oil demand in the first quarter are very, very weak.”
The IEA agreed with the view of many international economic institutions that recovery of the global economy would be delayed into 2010.
“Any green shoots are signalling recovery developing next year rather than this year,” Fyfe said.
While the prospects for lower demand have muted immediate concerns about a “supply crunch,” the IEA warned that resulting low oil prices were undercutting investment in new production.
Most experts in the industry “envisage oil supply levels in the next five years seriously constrained by today’s lower prices and lower investment,” the IEA said in a regular monthly report.
Fyfe warned that “if (oil) companies scale back on spending very sharply in the next one two three years, there’s a danger that when demand recovers, the supply side of the industry may struggle to keep up. We could have a supply crunch.”
The IEA said it now expected the global economy to contract 1.4 percent this year instead of expanding modestly as previously expected.
“This forecast implicitly discards a recovery in both global economic growth and oil demand from the second half of 2009 as we had earlier assumed.”
The IEA used graphic language to drive home the pessimistic signals which the oil market is sending about global industry.
The agency doubled its estimated drop in global demand this year, adding one million barrels per day to take its total downward revisions so far for the year to 3.3 million bpd.
This leaves total demand for 2009 forecast at 83.4 million bpd, about 2.4 million bpd less than in 2008 and the lowest level since 2004.
Data for the first quarter showed “much lower” demand than expected and the IEA cut 700,000 bpd from its estimate for the first quarter alone.
It said that it had pitched its latest figures in the middle of a range of uncertainty about where “the low water mark” lay.
Oil producers were also “scrambling” to cut back on deliveries to limit a build up of inventories which were “now at a giddy 61.6 days (of consumption) for February”, the highest level since 1993.
The Organization of Petroleum Exporting Countries, including Iraq, had cut its output overall by 235,000 bpd from the February level and by “an unprecedented” actual 3.36 million bpd since September to 27.84 million bpd.
This was the lowest level since the US-led invasion of Iraq in 2003.
OPEC output, excluding Iraq, was 25.57 million bpd, the lowest levels for five years after three agreed reductions in official production targets totalling 4.2 million bpd since September.
Saudi Arabia had held output steady in March at 7.95 million bpd, “about 100,000 barrels per day below its target.”
Global oil supply was down 400,000 bpd in March to 83.4 million bpd, with non-OPEC supply dropping 170,000 bpd.
The agency warned that estimated cutbacks in investment in oil extraction of 15-20 percent by non-OPEC producers could reduce output by another 360,000 bpd, a figure not factored into its latest forecasts.
It noted that production of biofuels would slow “dramatically” in 2009 after several years of rapid increase when oil prices soared to record highs around 147 dollars.
In the United States, 15-20 percent of ethanol capacity “has been shut-in or idled,” the report said, with European production of biodiesel likely to stagnate.
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