IEA issues bullish oil report as OPEC attacks its projections

The International Energy Agency on January 18 made a big upward revision to its estimate of world oil demand in 2011, even as its oil market projections came under attack from OPEC.

The IEA’s latest monthly oil market report predicted that world oil demand would average 89.13 million b/d in 2011, 360,000 b/d higher than previously forecast a month ago and some 1.8 million b/d higher than OPEC’s forecast which was published on January 17.

The more bullish outlook follows the submissions of higher than expected consumption data, not only from OECD member countries but also from non-OECD countries in Asia, the former Soviet Union and the Middle East, the IEA said.

The new figure implies a rise in demand of 1.41 million b/d in 2011, down from last year’s unusually high figure of 2.75 million b/d, which the IEA said was one of the biggest increases in the last three decades.

The IEA’s estimates, in particular on oil demand, are among the most widely-watched and respected in the industry, but this did not save the agency from an unexpectedly blunt attack from OPEC secretary-general Abdalla el-Badri.

Badri lashed out at the IEA for what he called “unrealistic assumptions and
forecasts,” saying these served only to cause confusion and even fear on world
oil markets.

“Supplying the world’s media with unrealistic assumptions and forecasts will serve only to confuse matters and create unnecessary fear in the markets. Ultimately, this is adding to volatility in the oil market and destroying the stability that OPEC works so hard to support,” Badri said in a statement posted on OPEC’s website.

Ten or 20 years ago such a public rebuke might have been less noteworthy, as the IEA and OPEC often held very different opinions, representing opposite ends of the oil sector.

But in recent years relations between the two have become much closer and more cooperative, with frequent meetings, workshops, seminars and the like.

Even though the IEA is currently concerned about high oil prices and the threat they pose to the global economy, it has so far refrained from laying the blame at OPEC’s door and calling for OPEC member countries to pump more oil.

On Monday, IEA chief Nobuo Tanaka described as “alarming” the recent rise in oil prices that last week took Brent futures as high as $99.20/b, but called for nothing stronger than “more flexibility” from OPEC.

The softly-spoken Tanaka is probably unlikely to retaliate in anger to Badri’s remarks, even though some of his staff will bridle at the criticism of their forecasting work.

But even if war does not break out between OPEC and the IEA, Badri’s comments nonetheless serve as a timely reminder that, for all of their talk about cooperation and understanding, the two organizations sometimes have very different opinions on oil prices and the market in general.