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IEA sends winter warning on oil prices to OPEC
AFP
PARIS
Petroleumworld.com 12 14 06The International Energy Agency said oil prices would remain high in coming months in an implicit warning to OPEC ministers to think twice before cutting production further on Thursday.
The IEA appeared to be sending the message to the Organisation of Petroleum Exporting Countries, gathering at Abuja, Nigeria, that oil prices are already set to be high during the winter in the northern hemisphere.
The IEA said that "without doubt" the last production cut by OPEC, in November, would push up prices during the winter months when fuel is in heavy demand and against a background of risks for the world economy.
OPEC sentiment had appeared to be running last week in favour of a production cut, but the latest comments from OPEC sources suggested on Wednesday that opinion was undecided.
The IEA said that in Germany and France demand for heating oil had risen for several months despite unusually mild weather because consumers had begun stocking in anticipation of rising prices, aggravated in Germany by an imminent increase in VAT sales tax.
In a broader context, the IEA held unchanged its forecast for world demand for oil in 2006 and 2007 but said a slowing of the US economy was a big factor of uncertainty.
The agency also estimated in its monthly report that Chinese demand would show a slight slowdown by the end of this year.
But it stood by its forecast for Chinese demand next year while noting that the Chinese oil market would change from this month owing to China's membership of the World Trade Organization.
The agency said that it expected world demand to grow by 1.1 percent this year to 84.5 million barrels per day and by 1.7 percent next year to 85.9 million barrels per day.
These figures were the same as those estimated last month.
However, the IEA said that a slight slowing of demand growth next year was possible owing to uncertainty about the course of the US economy.
The report said: "There remain considerable uncertainties over the levels of both supply and demand over the coming months."
Factors that were difficult to forecast covered the trend of world economic growth, production by Iraq and Nigeria, the discipline shown by OPEC in applying its production quotas and the result of the OPEC meeting on Thursday.
The agency said that a production cut by OPEC in November had "the potential to tighten the oil market this winter and offer little prospect, allowing for demand growth, of a recovery in stock (inventory) cover above the current 54 days".
Referring to the last OPEC production cut, the agency said that the outlook for the oil market in the months ahead offered "cold comfort for a risk-prone economy already facing another winter with high oil prices."
The agency downgraded its forecast for the growth of demand in China this year to 5.6 percent from 6.2 percent because demand had eased in the last three months.
It held its forecast for growth of Chinese demand next year at 5.4 percent.
The slowing of the US economy would not necessarily result in a marked fall of demand for oil next year because demand was driven mainly by consumption of auto and aircraft fuel.
In the short term, US consumers were likely to maintain their habits as heavy users of auto and airline travel, the report said.
But the overall oil estimates for 2007 were subject to "a big question mark" about prospects for economic growth in the United States.
Reduced production by members of OPEC and a fall of US oil inventories had pushed prices upwards recently despite exceptionally mild weather, particularly in Europe.
The market had also been affected by prospects that OPEC might reduce further its production at a meeting on Thursday, the report said.
Total production of oil had fallen by 50,000 barrels per day in November to 85.4 million barrels per day, of which 28.9 million barrels were produced by OPEC, a fall of 555,000 barrels per day from the October figure.
Within OPEC, the main reductions in output arose in Saudi Arabia, Iran, Iraq, the United Arab Emirates and Venezuela. This had increased unused OPEC production capacity to 2.4 million barrels per day.
Stocks of oil products held in the 30 countries belonging to the Organisation for Economic Cooperation and Development, of which the IEA is an offshoot, fell by 40 million barrels in October to 2.721 billion barrels or 33 million barrels more than was held in stock 12 months ago. This was the equivalent of 54 days of demand.
On China, the IEA said: The fact that for the past three months demand appears subdued suggests that China may be drawing commercial stocks since there is no evidence that the underlying structural support of Chinese consumption -- economic growth -- is losing steam."
It also noted that as a result of China's membership in the WTO, "the country is obliged in principle to open its crude and oil product wholesale markets to competition".
New rules would take effect on January 1. However, regulations were likely to favour incumbent operators and newcomers would probably opt to enter the market via joint ventures.
"Therefore, change will arguably be slow in the Chinese domestic oil market, where Sinopec and PetroChina account for 90 percent of total imports."
AFP 13 1147 GMT 12 06
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