UK: World oil demand growing

The International Energy Agency has raised its forecast for 2007 world oil demand growth, following revisions to its outlook for China, and told Opec that any further supply cuts could markedly tighten the market. The agency that advises 26 industrialised nations said oil stocks held by its members fell by 40.2 million barrels in December, leaving industrialised countries with enough fuel to meet demand for 53 days.

Lawrence Eagles, head of the IEA's oil industry and markets division, said the downward trend continued in January as Opec output cuts already in train made themselves felt.

Opec has noted that its 1.7 million barrels per day reduction has removed much of the excess from the 85.5 million bpd world market. Ali Al Naimi, oil minister of top exporter Saudi Arabia, has said more cuts probably will not be needed.
That view would find support at the IEA.

'Opec risks over-compensating in its attempts to rebalance fundamentals and to support prices above what, increasingly, looks like a preferred floor of $50-$55 a barrel,' the agency said in its monthly Oil Market Report.

'Upward demand revisions, a now-weaker non-Opec growth trend and declining Iraqi production all point to markedly tighter global balances.'

The IEA raised its global oil demand growth forecast for 2007 to 1.55 million barrels per day, or 1.8 per cent, from 1.39 million bpd, or 1.6 per cent, at the time of its January report. It said strong demand from China, the world's second biggest fuel burner, had lifted non-OECD oil demand growth to 3.2 per cent in 2007 from 3 per cent in the previous report.

The agency's reappraisal of Chinese demand boosts expectations for the country's consumption to 7.1 million bpd in 2006 and 7.6 million bpd in 2007.

'The report is straightforward and should be constructive for prices,' said Mike Wittner of Calyon investment bank.

'Demand has been revised up significantly and non-Opec supply has been trimmed. Bottom line, the call on Opec has been revised up by 400,000 barrels per day compared to the last report.'

Supply from non-Opec producers was revised down by 70,000 bpd for 2007 to 50.5 million bpd, with growth expected to amount to 1.1 million bpd or 2.2 per cent. Even this modest downward revision risks further tipping the supply/demand balance.

'There is a possibility that over the first half we could see a significant tightening of crude supplies,' said Eagles.

'Weak second quarter demand is a bit of a myth as far as crude oil is concerned because towards the end of the second quarter refiners start to crank up.´