During the next five years, investment in equipment will mean refiners will be better able to turn increasing quantities of heavy crude and fuel oils into lighter products such as gasoline, the IEA said in its monthly Oil Market Report today. Global oil demand will jump 2.5 percent next year to 88.21 million barrels a day, it said.
OPEC ministers and analysts blame refining bottlenecks and political tensions in exporting nations for high oil prices, which rose above $77 a barrel in London yesterday.
``In 2004, prices were $30 less than they are now and a large chunk of this is due to tightness in the refining sector,'' Lawrence Eagles, lead author of the report, said in a telephone interview from the agency's Paris headquarters.
``We think there will be more flexibility in refining and that will start to kick in from 2008; it could have a big impact on prices, though it won't all happen in 2008,'' he said.
World oil demand will rise 1.8 percent this year. Demand next year will be led by accelerating consumption growth in China and the Middle East. Oil use in Africa in 2008 will grow at twice the pace of the industrialized nations of the Organization for Economic Cooperation and Development, IEA estimates show.
The agency lowered its 2007 demand estimate by 100,000 barrels a day since its previous report one month ago. It was the first time the monthly report included estimates for 2008.
`Minimal Levels'
The IEA published a similar 2008 demand estimate on July 9 in a ``medium term'' five-outlook, when it said it saw ``increasing market tightness beyond 2010'' with spare production capacity among OPEC members declining to ``minimal levels'' by 2012.
The IEA estimated crude oil production by all 12 members of the Organization of Petroleum Exporting Countries was little changed in June at an average 30.17 million barrels a day, down 45,000 barrels a day from May.
Excluding Angola and Iraq, which aren't bound to OPEC production limits, OPEC crude output was 26.63 million barrels of oil a day in June, the IEA estimated, up from 26.61 million barrels a day in May.
OPEC has pledged to cut production from those 10 members to 25.8 million barrels a day from September's daily pace of 27.5 million barrels, though most analysts doubt the group will fully complete those cuts.
OPEC Distancing
OPEC oil ministers, who meet next on Sept. 11 in Vienna, ``seem to be distancing themselves from the likelihood of boosting production officially before then,'' the IEA said.
Eagles repeated the IEA's view that OPEC should make extra crude supply available sooner rather than later because ``oil needs to be flowing now'' in order to reach U.S. refiners in time for their peak summer requirements through September.
The agency's report predicted ``a sharp rise in the requirement for OPEC crude between a second quarter low point of some 30 million barrels a day and nearer 33 million barrels a day by the fourth quarter.''
OPEC Secretary-General Abdalla El-Badri said earlier this week that U.S. crude inventories are ample at nine-year highs so extra crude isn't needed. The IEA said gains in U.S. and Japanese oil inventories in June were partly offset by declines in Europe.
OPEC Estimates
On an annual basis, the IEA estimates demand for crude from all 12 OPEC members to be between 31.1 million and 31.7 million barrels a day this year and between 31.7 million and 32.3 million barrels a day in 2008. The agency doesn't directly forecast OPEC production. Estimates at the lower ends of those ranges reflect the IEA's doubts that supply from some OPEC nations, namely Iraq, Nigeria, Venezuela and Indonesia, can be fully relied upon.
It is a ``reasonable assumption'' that 550,000 barrels a day of Nigerian production capacity that has been shut for 18 months by militant violence will remain offline, the agency said. It added that the nationalization in Venezuela of oil assets held by ConocoPhillips and Exxon Mobil Corp. ``would seem that the risk to capacity is more on the downside.''
Even so, OPEC's overall oil production capacity, including crude and other forms of lighter oil, will rise about 1 million barrels a day next year to 35.4 million barrels a day. Non-OPEC oil supply is also expected to rise 1 million barrels a day next year, to 51 million barrels a day.
``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,'' the report said.
