IEA Sees Oil Fundamentals Easing,
But China Demand to Remain Firm
By SPENCER SWARTZ
August 12, 2008 5:06 a.m.
LONDON -- The International Energy Agency said Tuesday the tight global oil and supply balance that has driven crude prices to record heights this year is easing, but cautioned that healthy oil consumption in China and geopolitical factors still threaten to tighten market conditions in coming months.
With U.S. and European consumers reducing consumption and the Organization of Petroleum Exporting Countries and other producers pumping more crude, oil prices have eased around 20% since topping a record $147 a barrel in July, the IEA said in its August oil market report.
"In terms of oil fundamentals, crude and product supply tightness has eased," the IEA said, while adding that the global oil market still faced many challenges.
"We continue to stress the supply uncertainty that's out there. The events over the past week in Georgia and Turkey have only reconfirmed that," said IEA supply analyst David Fyfe, referring to an oil pipeline blast in Turkey last week that shut at least 500,000 barrels a day of production and to recent fighting between Russia and Georgia, a major oil transit country.
The Paris-based agency, the energy watchdog to the world's big oil-consuming nations, revised down its forecast for world oil demand growth this month by 100,000 barrels a day from its previous report. Global consumption this year is seen averaging 86.9 million barrels a day, 0.9% above 2007.
Much of the demand growth revision stemmed from the U.S., the world's biggest oil consuming nation, where consumption is expected to fall 3.1% this year and 2% next year.
But some of that decline will be offset by Chinese demand which is seen growing by 5.6% in 2008 and 5.7% next year, levels essentially unchanged from the IEA's report last month. China is the world's second biggest consumer but uses just about one-third the amount of crude as the U.S.
The IEA said Chinese oil demand after the Olympic Games in Beijing remained a big open question. The Chinese government has closed hundreds of factories and ordered more than one million cars off Beijing's roads in order to reduce pollution during the games, but that idled demand could spring back once the games are over.
Some analysts, however, say China has built up adequate oil stocks in the run up to the Olympics that will keep a clamp on demand even once the games are over.
Despite easing demand, oil inventories in large consuming nations like the U.S. haven't swelled far above normal levels to threaten sharply lower crude prices. Inventories are a key metric closely watched by OPEC in setting its production policy.
Stocks in Organization for Economic Cooperation and Development nations were just above their five-year average level in June at 53.4 days of forward demand cover. A year ago at that time, demand cover stood at 54.5 days, Mr. Fyfe said
