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World oil market could be set for lengthy slowdown: IEA

by Staff Writers
Paris (AFP) Feb 13, 2008
The world oil market could be set for a lengthy slowdown, the International Energy Agency said on Wednesday, signalling a sharp shift in the climate that pushed the oil price to 100 dollars last month.

In light of weaker global economic prospects, the IEA cut its forecast for world demand for oil this year by 200,000 barrels per day.

It said it expected world demand in 2008 to grow by 1.9 percent instead of 2.2 percent forecast last July.

"Just as the demand shock of 2004 shaped the oil market for the next three years, so too could the pending slowdown," the agency, which coordinates energy policies for the main industrialised consuming nations, commented in its monthly review of oil trends.

"One of the most indicative factors since we released the last (monthly) report was the negative news on the world economy, especially in the United States, yet the oil price remained unchanged," IEA chief analyst Lawrence Eagles told AFP.

The latest study, which noted that crude oil prices were little changed from mid-January at just over 90 dollars a barrel, said "an economic slowdown has the potential to change the landscape over the next few years: depending on how deep it is and how long it lasts."

But it also noted that projected robust economic momentum in China and the Middle East, two key centers for oil demand growth, stood in contrast to sluggish performances expected in the world's principal industrialised nations.

The IEA findings, according to Natexis bank analyst Moncef Kaabi, point to a "globally balanced oil market this year, apart from geopolitical tensions, but there will be no real price stability as long as Asian demand does not slow."

China's demand for oil is forecast to grow 5.8 percent this year to 7.9 million barrels a day after a 4.5 percent rise in 2007.

But the IEA cautioned that recent widespread power shortages and severe weather in China "have cast a shadow over the 2008 prognosis."

While power cuts could point to a surge in oil demand for energy generation, recent snowstorms have disrupted transportation during the Lunar New Year holiday and could therefore depress demand for transportation fuel.

The IEA found that in January, world oil supply had risen by 745,000 barrels per day to 87.2 million barrels "on new output from Brazil and recovering non-OPEC output elsewhere."

Supplies from the Organization of Petroleum Exporting Countries had remained close to 32.0 million barrels per day on increased output from Angola, the United Arab Emirates, Saudi Arabia and Kuwait, while production had eased in Iraq, Nigeria and Qatar.

However, OPEC's real spare capacity had risen to 2.4 million barrels per day in January.

"We've got low stocks and relatively low spare capacity," Eeagles said.

"Spare capacity is due to grow this year," he continued, adding that much would depend "on whether it is made available by OPEC."

"Spare capacity belongs to OPEC. The non-OPEC producers are producing flat out."

Non-OPEC January output is estimated by the IEA to have come to 50.2 million barrels a day in January, an increase of O.7 percent from December when production from Mexico, the former Soviet Union and China was much lower than preliminary estimates.

Overall, according to the agency, non-OPEC total production -- apart from Ecuador -- for 2007 and 2008 is predicted to remain at 49.7 million barrels a day and 50.6 million barrels a day respectively.

The IEA said that industrial stocks of oil in the area covered by the Organisation for Economic Cooperation and Development had fallen by 39.5 million barrels in December. The agency warned that oil inventories remained low, "as does spare capacity."

Geopolitical issues in Nigeria, Venezuela, Iraq and Iran had helped push up prices. Despite the pressures now bearing down on demand, there was "clearly" a need to rebuild stocks, the IEA said.

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