Word from the IEA: Oil demand falling, but world needs more supply

The International Energy Agency’s latest monthly oil market report contained what may on the surface appear to be contradictory messages of falling oil demand but a need for additional supply.  The cut in the IEA’s headline forecasts was relatively modest, with the agency saying it now expects demand to grow by 1.29 million b/d in 2011, 150,000 b/d less than previously estimated.  The fall in demand was not entirely unexpected, given the negative impact on consumption of prolonged high oil prices and signs of weak economic growth in the developed countries of the OECD.  In the US, sales of gasoline–and don’t forget that American demand for that one refined product is greater than total oil consumption in any other country except China–could post a year-on-year decline this year, the IEA said, warning of an “anaemic” driving season.  But despite the lackluster appetite for oil, the market is expected to tighten in the coming months and OPEC will have to pump more crude to prevent stocks from falling well below normal levels, the report said.  The IEA estimates that the call on OPEC–essentially the volume of crude OPEC has to produce in order to balance supply and demand–will rise from 29.3 million b/d in the second quarter of this year to 30.1 million b/d in the third.  The Q3 call on OPEC is around 1.35 million b/d higher than the cartel’s current production, estimated by the IEA to have fallen to 28.75 million b/d in April as Libyan production slowed to a trickle.  All of which makes an interesting context for OPEC’s upcoming June 8 meeting, the cartel’s first since December last year.  At the moment, the IEA said a formal agreement by OPEC next month to raise output appeared unlikely, but that an informal pact to ramp up production, “most likely by OPEC’s Gulf members as well as Nigeria, may emerge.”

Platts