The International Energy Agency signalled little respite for energy consumers yesterday in either the short or medium term, as it warned of the "clear need" for more Opec oil this year and raised its five-year oil price forecast by a whopping $19 (Dh69.78) a barrel, citing in both cases oil demand that will rise higher than previously expected in a supply-constrained market.
This represents a more bullish take on the oil market than previous forecasts from the IEA, which represents major energy consuming countries and whose views have considerable sway in the oil market. At 9.15am, the price of benchmark August Brent crude was up $1.72 at $114.73 a barrel.
In prior editions of its monthly and medium-term market reports, the agency had taken a more cautious approach to economic and oil demand growth, but now says it expects both to be stronger even in the face of high oil prices.
Furthermore, it said the current cushion of spare oil production capacity will remain "uncomfortably thin" for several years, in large part because Libyan oil production may not return to pre-war levels until 2014.
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In the short term, the IEA warned there is a danger of "overheating in prices" resulting in economic damage this year if Opec doesn't pump extra oil. The promise from Saudi Arabia to pump up to an extra one million barrels a day this month and next would bring "welcome relief," it said.
This position gives clear support to Saudi Arabia and other Gulf countries that split away from Opec at its Vienna meeting last week, after the rest of the group blocked a production increase.
Weak economic growth
The Gulf countries argued that Opec should raise output to meet substantially higher demand in the second half of the year. The opposing faction, led by Iran and Venezuela, warned economic growth was weak and oil demand could falter, leaving the market over supplied.
The meeting failed to reach a consensus and ended in acrimony, leaving output unchanged despite forecasts from both the IEA and Opec that, in the third quarter this year, the world will need an extra 1.5 million barrels a day from the exporters group, compared with most recent production figures.