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IEA sees strong 2008 oil demand, more supply

LONDON - World oil demand will grow more quickly in 2008, though higher production and refinery capacity should ease pressure on supply, the International Energy Agency said on Friday.

In its Monthly Oil Market Report, the adviser to 26 industrialised countries said demand will rise by an average 2.2 million barrels a day in 2008, up from this year’s expansion of 1.53 million bpd.

The outlook comes as oil prices are trading above $76 a barrel, closing in on a record high near $79, on concern of a tightening market. Next year’s supply and demand balance should be more comfortable, the IEA said.

‘We see a slightly easier situation in several ways,’ said Lawrence Eagles, head of the IEA’s Oil Industry and Markets Division. ‘Total crude and liquids growth is in excess of demand growth.’

Oil demand next year will average 88.2 million bpd, the agency said. It cut expected demand growth this year by 140,000 bpd to 1.53 million bpd after receiving new data for 2006.

Most of the growth will be outside the OECD group of industrialised nations such as in China and the Middle East, the IEA said. It also assumes higher OECD demand from a return to normal winter weather.

The report is the second major assessment of the oil market this week from the Paris-based IEA.

In its Medium-Term Oil Market Report on Monday, it warned of a looming supply crunch as demand rises faster than expected to 2012 while supply lags. That outlook sent prices higher.

More supply

Oil eased on Friday after the latest report was released. Brent crude was down 20 cents at $76.20 at 1004 GMT.

The report points to a greater reliance next year on the Organization of the Petroleum Exporting Countries, source of more than a third of the world’s oil.

Next year’s demand growth will lift the need for oil from OPEC by 600,000 bpd to a range of 31.7 million bpd to 32.3 million bpd, the agency forecast.

Even so, OPEC’s oil production capacity will rise by one million bpd next year, and non-OPEC output is also expected to grow by one million bpd and biofuels output by 350,000 bpd.

In addition, the IEA expects the world’s oil refining network to expand by 1.5 million bpd next year, easing a strain on fuels production. Almost half of the growth will be in China.

‘Overall, both in terms of spare upstream capacity and refinery flexibility, 2008 looks at this stage to be slightly more comfortable than 2006 and 2007,’ said the report.

Ten OPEC members began cutting production in 2006 to stem a drop in prices. The IEA has repeatedly urged OPEC to raise supply and the report pointed to a higher need for the group’s oil by the fourth quarter.

OPEC officials maintain they are not to blame for near-record oil prices and point the finger at a global shortage of refinery capacity and international political tension.

The 12-member group’s production in June fell slightly to 30.17 million bpd from 30.21 million bpd in May, the IEA said.