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IEA warns on oil inventories after big Q1 drop

LONDON - Oil stocks in consumer nations posted the biggest first-quarter drop in a decade and may fall further in coming months, the International Energy Agency said, keeping the heat under crude prices.

In its April monthly report on Thursday, the adviser to 26 industrialised countries also shaved its 2007 world oil demand forecast by 250,000 barrels per day to 85.8 million bpd due to a mild winter in Europe and Asia.

Oil inventories are falling as supply cuts by the Organization of the Petroleum Exporting Countries kick in. Lower stocks have helped boost US crude prices towards $63 a barrel from below $50 in mid-January.

“There has been a sharp stockdraw in the first quarter,” Lawrence Eagles, head of the IEA’s Oil Industry and Markets Division, told Reuters.

“It’s clearly had a tightening impact and we think it’s going to carry on having a tightening impact on the market.”

Inventories in the OECD fell by 80.5 million barrels in February. Preliminary March data for the United States, Japan and Europe suggest OECD stocks may fall by about 1 million bpd in the first quarter, the agency said.

That would be the highest rate of decline since the same period in 1996, the IEA said, although final data are needed to confirm the drop. Final March figures will be available in June and provisional data in May.

Oil prices rose after the IEA report was released. US crude was up 68 cents at $62.69 a barrel as of 1230 GMT.

Lower supply

The IEA also lowered its world oil demand forecast for 2006 as well as for this year, leaving the rate of oil demand growth in 2007 virtually unchanged at 1.8 percent, or 1.5 million bpd.

Lower OPEC production contributed to a 265,000 bpd drop in world oil output last month to an average of 85.3 million bpd.

OPEC’s 10 members, excluding Iraq and Angola, bound by the group’s production cut agreements trimmed supply in March by 195,000 bpd to 26.5 million bpd, the IEA said.

It said total OPEC output fell to 30.1 million bpd, the lowest since January 2005 and less than needed to refill inventories while spare production capacity remains limited.

“Output remains below the level needed to generate the usual spring crude stock build,” the report said.

“With apparently sharp draws in commercial inventory seen in 4Q06 and 1Q07, and a still-tight margin of spare capacity, current OPEC production could imply a further marked tightening in stocks in months to come.”

The group that pumps more than a third of the world’s oil opted to maintain supplies at a meeting in March. At its two previous meetings, it agreed to curb output by 1.7 million bpd, roughly six percent.

Because of lower demand, the IEA cut its estimates of the need for OPEC oil to between 30.4 million bpd and 31.5 million bpd on average in 2007, down respectively 200,000 bpd and 100,000 bpd from last month.

Still, analysts said the IEA report underscored a trend for falling inventories that is likely to keep prices high and that the changes to demand were of minor importance.

“We’ve had two quarters of sizeable stock draws, which sets the stage for $60-plus crude for the rest of the year,” said Mike Wittner of investment bank Calyon.

“The change in the call on OPEC is not that important. The fact remains that OPEC has got to increase production by a huge amount as we progress through the year.”