Thu, Jul 14, 2016 - Page 12 News List

Demand may boost oil prices: IEA


Greater-than-forecast demand should bolster oil prices this year, despite high stocks continuing to exert downward pressure on prices, the International Energy Agency (IEA) said yesterday.

Global demand for oil will grow by 1.4 million barrels per day this year to 96.1 million barrels per day, the agency said in its monthly oil market report, revising upward last month’s forecast of a 1.3 million barrels per day rise.

While predicting a “return to balance” in overall “big picture” market direction, the agency said “the existence of very high oil stocks is a threat to the recent stability of oil prices.”

Last month the agency said that significant price rises were unlikely given that “there is an enormous inventory overhang to clear.”

It said that crude prices had edged off an early peak last month of more than US$52 per barrel to trade in a US$45 to US$50 range — a stark contrast to the nearly daily price declines earlier this year.

“Our underlying message that the market is heading to balance remains on track, but the modest fall back in oil prices in recent days to closer to [US]$45/bbl [barrel] is a reminder that the road ahead is far from smooth,” the report said.

“The adjustments to our data this month suggest that little has changed with the market showing an extraordinary transformation from a major surplus in 1Q16 [the first quarter] to near-balance in 2Q16,” it added.

Oil prices, which slumped below the US$30 per barrel mark in January, rebounded earlier this week from two-month lows as an OPEC forecast pointed to an easing of global oversupply.

US benchmark West Texas Intermediate for August delivery on Tuesday jumped US$2.04 to US$46.8 per barrel on the New York Mercantile Exchange, while in London, Brent North Sea crude for delivery in September added US$2.22 to reach US$48.47 per barrel.

This month, OPEC has forecast the global supply glut would ease this year and next, as producers outside the cartel, particularly in the US, cut production.

The 14-member cartel, which provides about one-third of the world’s crude, has squeezed competitors in recent months by keeping the taps open, saying last month’s production rose by 264,000 barrels per day to an average 32.9 million barrels per day.

OPEC has predicted global demand growth would pick up next year to allow the market to remove excess stocks.

For next year, the IEA forecast a 1.3 million barrel per day increase to 97.4 million barrels per day, largely thanks to demand in non-Organisation for Economic Co-operation and Development countries, led by India and China.

Demand in India was forecast to rise faster than anywhere next year, by 280,000 barrels per day, whereas “the main restraint on recent Chinese demand data continues to be the weakening of the domestic economy.”

The agency said that Europe has been the “saving grace for oil demand,” with growth reaching a five-quarter high in the second quarter.

This was “unlikely to last,” given economic “precariousness” after Britain’s vote to leave the EU, a result that “added to the uncertainty,” it said.

Overall, the agency indicated there remained “an ominous investment gap building up in the oil industry that might, depending on how quickly today’s record-high oil stocks are eroded, create the conditions for sharply higher prices over the medium term.”

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