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IEA warns on OPEC output level, falling stocks
By Adam Plowright
AFP
PARIS
Petroleumworld.com 04 13 07
The International Energy Agency warned on Thursday that the OPEC oil producers' group might have cut its production too much, with insufficient current output eroding world stock levels.
The 12-member Organisation of Petroleum Exporting Countries decided to cut its production twice at the end of last year to help support prices that were falling at the time.
"Our opinion is that crude supply is too tight and with prices close to 70 dollars a barrel the market is sending a signal that it needs more oil," said the editor of the IEA's monthly oil market report, Lawrence Eagles.
In a warning that prices could rise further, he added: "We have the potential to see a tightening of the market over the course of the next few months if OPEC output stays where it is."
The IEA monthly report for April, published Thursday, stated that OPEC output in March was at a two-year low, its lowest level since January 2005.
Falling stock levels was one of the factors that drove oil prices higher over the last month to an average of 68 dollars per barrel in early April, said the IEA, an energy watchdog that advises rich oil-consuming countries.
Stocks are seen as a safety cushion for consuming countries and low stock levels cause prices to rise.
"OPEC supply curbs since last autumn have coincided with two quarters of heavy OECD stock draws and output remains below the level needed to generate the usual Spring crude stock build," the report warned.
Strong demand for gasoline in the United States, refinery maintenance, disruption to oil production in Iraq and Nigeria, and geopolitical tension over Iran also pushed up prices in the last month, the IEA said.
The IEA said that inventories in OECD countries fell by 80.5 million barrels in February "on declining product stock in all regions and a crude draw in the Pacific."
Forward cover, which means the number of days of consumption covered by oil stocks, was "declining counter-seasonally," the IEA warned.
World oil output fell by 265,000 barrels per day in March on a monthly basis to 85.3 million bpd, with OPEC output down 165,000 bpd at 30.1 million bpd.
OPEC maintains that there is adequate supply to the market at the moment, with high prices being caused by geopolitical tensions such as the standoff last month when Iran captured 15 British sailors.
"The high prices of late are due to the geopolitical situation. It has nothing to do with the fundamentals," OPEC President Mohammed al-Hamili, who is also oil minister for the United Arab Emirates, said last week.
IEA analyst Eagles said that gasoline stocks in the United States had fallen sharply in the last month and that crude stocks risked a similar fall in the months ahead.
Gasoline stocks "have gone from a position of adequacy to a position of tightness in the space of a month," he said.
"Our concerns about OPEC market management is that it doesn't take very long for stocks to tighten, but it takes a while for crude supplies to get to the market and be processed," he said.
Global crude prices extended gains on Thursday as traders weighed up the latest data from the US Department of Energy that showed a heavier-than-expected fall in gasoline stocks in the week to April 6.
The price of Brent North Sea crude for May delivery added 61 cents to 68.45 dollars per barrel in London electronic trading.
New York's main oil futures contract, light sweet crude for delivery in May, gained 72 cents to 62.73 dollars per barrel in electronic deals before the official open of the US market.
AFP 12b1151 GMT 04 07Copyright© 2007 AFP. All Rights Reserved.
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