World Oil Spare Capacity To Fall Below 1 Million B/D In ‘06 -EIA

The already thin cushion of spare oil production capacity will shrink even further in 2006, the top U.S. government energy statistician said Thursday.

According to Guy Caruso, head of the federal Energy Information Administration, the amount of unused output capacity that oil producers can bring on line quickly will fall below 1 million barrels a day in 2006, barely 1% of world oil demand that year and not nearly enough to cover a significant disruption of oil flows from Iraq or Nigeria.

“World oil spare capacity got extremely low in 2004, and we see that tightening further in 2006,” Caruso said.

World Oil Spare Capacity To Fall Below 1 Million B/D In ‘06 -EIA

WASHINGTON -(Dow Jones)- The already thin cushion of spare oil production capacity will shrink even further in 2006, the top U.S. government energy statistician said Thursday.

According to Guy Caruso, head of the federal Energy Information Administration, the amount of unused output capacity that oil producers can bring on line quickly will fall below 1 million barrels a day in 2006, barely 1% of world oil demand that year and not nearly enough to cover a significant disruption of oil flows from Iraq or Nigeria.

“World oil spare capacity got extremely low in 2004, and we see that tightening further in 2006,” Caruso said.

The EIA is the statistics arm of the U.S. Department of Energy. In part due to the capacity constraints, the agency now sees oil prices remaining above $50 a barrel through 2006.

OPEC needs to boost oil production now to allow inventories to build up enough to cover strong demand later this year, Caruso said.

“The inventories need to be built further to meet future demand and boost days of forward cover,” he said. “There is very little spare capacity, and if you want to get where you need to be in the fourth quarter, you can’t wait till September 30 to build stocks.”

The Organization of Petroleum Exporting Countries raised its production ceiling by 500,000 barrels a day in March and is considering another increase of that size, to 28 million barrels a day, but those steps are insufficient, he said.

“We think OPEC will have to increase production in order to meet the kind of demand we’re expecting,” Caruso said. “The quota increase is still below what we believe is required.”

Output from independent producers is weaker than expected. To balance out demand, OPEC needs to average production of 30.2 million barrels a day this year, Caruso said. EIA data show the group produced 29.8 million barrels a day in March, little changed from February.

U.S. policy clearly opposes using the Strategic Petroleum Reserve to cool prices, Caruso said.

-By Karen Matusic, Dow Jones Newswires; 202-862-9241; karen.matusic@ dowjones.com

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