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    International Energy Agency Predicts Ease in Oil Demand in 2005

    But there's little reason for consumers to expect lower prices any time soon.

    LONDON -- The International Energy Agency predicted Tuesday that the rampant growth in world oil demand will cool by approximately 2.2 percent in 2005, as China and other oil-hungry developing countries approach their limits for refining and transporting crude, reported the Associated Press.

    Demand next year will average 83.2 million barrels per day, and crude supplies from Russia, Angola and Brazil will meet the bulk of the increased needs, the agency said in its monthly oil market report.

    However, uncertainties about supplies from Iraq, Nigeria and some other large producers -- together with limited spare production capacity everywhere -- could upset these estimates, it said.

    The Paris-based IEA is the energy watchdog for wealthy oil-importing countries. Although it generally avoids forecasting prices, it suggested strongly there was little reason for consumers to expect lower prices any time soon. This was particularly true of prices for gasoline and other refined products, due to a "persistently tight" capacity for refining and distributing the products and to political risks in key crude producing countries.

    For 2004, the agency predicted that oil demand will surge 3.2 percent to an average of 81.4 million barrels per day for the year. The global economic recovery accounts for much of this growth, as does the transfer of manufacturing activity to less energy-efficient developing countries and to rising consumption there, the IEA said.

    The agency noted that crude supplies rose in June by one percent, or 790,000 barrels per day, with OPEC accounting for 635,000 barrels of the increase. Even so, prices for U.S. light crude rose to more than $40 per barrel early last month, due to concerns about supply disruptions in Iraq, where saboteurs have bombed export pipelines, and to fears of a possible terror attack in Saudi Arabia, the world's top exporter.

    Saudi Arabia and its OPEC partners are already pumping 1.4 million barrels above their July production target of 25.5 million barrels. With crude output from the North Sea, Australia and other mature areas continuing to decline, the IEA warned that the world's thin cushion of spare production capacity is likely to get even thinner.

    Many analysts agree. They estimate that the world has little more than 1 million barrels in spare capacity, almost all of it in Saudi Arabia. If world demand rises by 2.5 million barrels between the second quarter of this year and the fourth -- as the IEA predicts it will -- this capacity cushion will shrink to nothing, said Paul Horsnell, head of energy research at Barclays Capital in London.

    As a result of this looming capacity crunch, Horsnell believes that importers will have to dip deep into their already limited inventories this winter. Oil prices will remain high and volatile, and a supply problem anywhere in world could cause them to spike higher. "Virtually anything is a shock because there is no cushion for it," he said.

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