IEA Sees Oil Supply Rising as Demand Growth Slows to 2017

Global oil markets will become better supplied in the next five years as demand growth slows and production rises in North America and the Middle East, according to the International Energy Agency.

Worldwide fuel demand is projected to gain 1.2 percent annually to 95.7 million barrels a day in 2017, from 89 million last year, the Paris-based energy adviser said in its medium term oil market report today. Output is forecast to advance about 1.5 million barrels a day each year to 102 million barrels a day in the same period. Crude prices may not drop much even as producers pump more because of increased geopolitical risks, the agency said.

“Demand has softened, and remains uncertain looking forward,” Maria van der Hoeven, the agency’s executive director, said in a presentation of the report. “Organization for Economic Cooperation and Development countries suffer from persistent debt concerns, notably in the euro zone, and there are signs that even China is slowing.”

The IEA represents some of the world’s largest oil- consumers, including the U.S., Germany and Japan. The agency coordinated the release of 60 million barrels of oil in June last year to offset lost supplies from Libya during an armed uprising that boosted prices. That was the third use of emergency reserves in the agency’s history.

Robust Supply

Supply growth will rise by a “robust” 9.3 million barrels a day over the next five years, the agency said. North America’s oil sands and light-tight crude will account for 40 percent of the gain, while Iraq will make up 20 percent.

The IEA cut its consumption forecast by 500,000 barrels a day from its previous five-year estimate in December. The agency also published its monthly oil market report today, keeping its 2013 forecast for oil demand growth stable. It said OPEC output fell to an eight-month low last month as sanctions hit Iranian exports more than expected.

“This mild outlook is partly deceptive, given exceptional uncertainty about the global economy and heightened regional geopolitical risks,” said the IEA, whose members comprise 28 industrialized nations.

Oil prices may not decline much, even as supplies from the Organization of Petroleum Exporting Countries increase, because of the risk of supply disruptions from political turmoil, unplanned maintenance or extreme weather, the agency said. Brent crude climbed 7 percent this year and traded today at about $114.50 a barrel on the ICE Futures Europe exchange in London.

High Risk

“Whereas in the past, more comfortable OPEC spare capacity would normally have been associated with a downturn in price, a higher risk environment may allow elevated prices and relatively high spare capacity to coexist,” the IEA said.

OPEC’s spare production capacity is projected to rise to “more comfortable levels” of as much as 7 million barrels a day in 2017 from 2.8 million last year, the agency said.

The IEA based its price assumptions on the futures curve, which suggests crude will gradually ease through 2017 while remaining historically high.

Refiners are expected to add 7 million barrels a day of crude distillation capacity in the next five years, outpacing demand growth. The expansions will cause utilization rates to fall to 79 percent in 2017 from an average of 83 percent from 2006 to 2008.

“The main loser in the expansion of global refining capacity will be the OECD, especially Europe,” where more plants will probably close before 2017, the IEA said.

Shifting production trends across the globe are redrawing the oil map, which will “deeply affect trade flows,” the agency said.

Once a large importer, North America moves closer to self- sufficiency over the five-year period, while Russia and the Middle East will likely export less fuel to Europe, turning shipments instead to refineries in their home markets as well as to developing nations in Asia.

Bloomberg