The International Energy Agency (IEA) said the oil market is better supplied than at the start of this year amid concern that slowing growth will curb crude demand.
The IEA reduced its forecast for 2012 crude consumption to 89.9 million barrels a day, the Paris-based energy adviser said. That’s revised down by 100,000 barrels from May and reflects an increase of 820,000 barrels from last year.
Brent crude futures have lost 23 per cent since March, trading at about $97.50 (Dh358) a barrel, amid rising oil production and growing concern that Europe’s debt crisis will affect global economic recovery and dent demand for energy.
“Market fundamentals have eased since early 2012,” the IEA said in its latest monthly oil market report. “The springtime slump in oil markets accelerated in May in the wake of the deepening Eurozone crisis, mounting concern over a slowdown in Chinese growth and rising global oil supplies.”
Worldwide oil production rose by 200,000 barrels to 91.1 million barrels a day in May as Canada and the US increased output, the agency said.
“We’re still in a pretty fragile economic situation,” David Fyfe, head of the IEA’s oil industry and markets division said on Wednesday by phone. “We don’t necessarily view the market presently as oversupplied.”
The IEA expects the Organisation of Petroleum Exporting Countries to maintain its 30 million barrel-a-day output ceiling when it meets on Thursday in Vienna. The group pumped 31.86 million barrels a day last month, down from 31.89 million in April as Saudi Arabia and Iraq trimmed production.
Opec should raise its output ceiling by 500,000 to 1 million barrels a day to keep prices at current levels amid Europe’s debt crisis, two delegates from Middle Eastern member countries said.
Opposition from other Opec nations, such as Iran and Venezuela, will probably result in the group’s collective output limit remaining unchanged, according to the delegates, who declined to be identified because a final decision will be made by ministers on Thursday.
Demand for Opec crude is estimated to increase to 30.9 million barrels a day in the second half of this year from 29.8 million in the first six months of 2012, according to the IEA.
“Some may be tempted to see the market as oversupplied, and there have been calls by a number of producers for “over-production” to be reined in,” the IEA said. “Memories are indeed short: crude prices remain very high in historical terms, and are acting as a drag on household and government budgets in the Organisation for Economic Cooperation and Development and emerging markets alike.”
Tightening sanctions on Iran and production halts outside of Opec pose some risks to supply for the rest of the year, the IEA said. Outages from producers in the North Sea, Syria, Yemen and Sudan and South Sudan will rise to 1.18 million barrels a day in the third quarter, the agency said.
“Higher Opec production sits against a backdrop of tight end-2011 inventories, stubbornly high prices and persistent uncertainty over non-Opec and Iranian supply for this summer,” the IEA said. A European Union ban on purchases of Iran’s oil takes effect on July 1.
Supplies outside of Opec are forecast to rise, even taking into account the stoppages, to 53.4 million barrels a day this year, growing from 52.7 million in 2011. That’s an upward revision of 90,000 from last month’s report.
Stockpiles held by companies in the 34 OECD nations rose 17.3 million barrels in April to 2.6 billion barrels. That equates to 59.4 days’ worth of consumption and is 1.9 days more than the five-year norm.