Paris, May 12: The IEA on Wednesday lowered its projection for global oil demand this year in the face of public finance pressures in Europe and elsewhere that could drown economic recovery “in an ocean of public debt.”
The International Energy Agency said oil prices, after suffering their biggest weekly decline in 18 months in early May on fears the Greek debt debacle could spread, are likely to average 76.50 dollars a barrel in 2010.
On Wednesday New York’s main contract, light sweet crude for June delivery, was trading at 75.74 dollars a barrel and Brent North Sea crude for June at 80.30 dollars a barrel.
The agency in its monthly report also warned that hastily crafted moves to regulate markets could trigger oil price volatility and said the recent oil rig disaster in the Gulf of Mexico should not lead to a ban on off-shore drilling.
Worldwide oil demand is projected at 86.4 million barrels a day this year, up 1.9 percent from 2009 but 220 thousand barrels a day fewer than the IEA had previously estimated.
“The economic recovery is at risk of drowning in an ocean of public debt,” the IEA said, adding that “downside risks remain a clear and present danger.”
While current attention is riveted on Greece, “other large economies — and not only in Europe — face the increasingly pressing challenge of achieving an orderly fiscal consolidation in the next few months without jeopardising long-term growth.”
Oil demand growth is expected to be “entirely” driven by emerging market and developing countries, notably in Asia, where economies are projected to expand this year by 6.4 percent, nearly three times as fast as in traditional industrialised nations.
Demand in Asian powerhouse China rose 12.5 percent in March from the same month last year, a somewhat slower pace compared with the previous three months as the country takes steps to rein in its real estate market in the face of inflation pressure.
The IEA noted that in the current economic climate, some policymakers see the oil futures market as a problem as they act to curb what is seen as speculative excess.
While acknowledging that market regulation and oversight are called for, “moves aimed at avoiding market manipulation and price volatility, if hastily formulated, could re-inforce volatility if they hamper investment and price discovery.”
It cautioned that a “knee-jerk” decision by regulators to ban offshore drilling licenses, following the fatal explosion and oil leak at the Deepwater Horizon rig in the Gulf of Mexico, could force “companies to ever-more precarious locations in search of hydrocarbons.”
“The law of unintended consequences may apply.”
On the supply side of the equation, the IEA, which seeks to coordinate energy policies among industrialised nations, found that global oil supply was unchanged in April from March at 86.6 million barrels a day. Compared with April 2009 production was up by 2.6 million barrels a day.
The Organization of Petroleum Exporting Countries, responsible for 40 percent of global crude output, increased production by a “modest” 40 thousand barrels a day in April to a total of 29.03 million barrels per day, according to the IEA.
Excluding Iraq, the 11 OPEC members bound by output targets boosted output by 70 thousand barrels a day to 26.79 million barrels.
That meant that OPEC-11 compliance with its targets came to only 55 percent in April, with production estimated at 1.95 million barrels a day above the group’s collective quota of 24.845 million barrels a day.
Saudi Arabia, the United Arab Emirates and Kuwait are the most scrupulous OPEC compliers while Angola and Nigeria are exceeding their targets, according to the IEA.
—Agencies