PARIS — Demand for oil is slowing markedly as global growth is dragged down by the eurozone crisis, the IEA said on Tuesday, but the prospect of EU sanctions against Iran is supporting prices.
The International Energy agency again cut its outlook for growth of oil demand, mainly because of a slowdown in advanced countries, just as OPEC ministers headed for a meeting on production levels.
The Organization of Petroleum Exporting Countries is widely expected to hold its official output target at 24.84 million barrels per day, unchanged for almost three years.
The IEA cut its growth forecast for global demand this year and next by up to 200,000 barrels per day to give a 700,000 bpd gain as global economic growth comes in about one-third weaker than estimated six months ago.
Assuming that growth in production capacity continues, this "leaves the world with 6-8 million barrels per day of spare capacity during 2013-2016.
"Greater supply side flexibility is welcome, although it would be a pity for it to come about largely because of suppressed economic activity," the IEA said in a regular monthly review.
Oil prices firmed in November and early December because of strong seasonal demand with the approach of the northern hemisphere winter and owing to tight supplies.
"Bullish impetus also came from news of a potential EU ban on Iranian crude imports. These factors outweighed escalating economic risks."
The IEA, the developed economies' energy advisory group, commented: "Recent months have seen a definite deterioration in the economic outlook for Europe, and accordingly the world.
"A combination of the worsening global economic backdrop and persistently heightened oil prices has resulted in lower forecasts for global oil demand in 2011 and 2012, with projections trimmed by 0.16 million bpd and 0.20 mbpd respectively.
"Uncertain prospects for the single European currency continue to provide added downside risk to current economic growth estimates."
In London, New York crude for delivery in January rose 36 cents to $98.13 per barrel but sentiment was overshadowed by concerns about the eurozone debt crisis, traders said.
The IEA said that global oil demand was now expected to average 89 mbpd by 2011, a rise of 0.7 mbpd from the level in 2010, and then to rise by 1.3 mbd in 2012 to 90.3 mbpd.
Meanwhile Tuesday, OPEC also cut its estimate of oil demand next year to 88.87 mbpd from its previous forecast of 89.01 mbpd.
The IEA said that global supply in November rose 0.9 mbpd from the October level to 90 mbpd, owing to a reduction of unplanned production stoppages among OPEC members.
Supplies from non-OPEC countries would grow by 0.1 mbpd this year and then by 1.0 mbpd in 2012, "with strong gains expected from the Americas."
Supplies from OPEC in November "rose to the highest level in more than three years, up by 620,000 bpd to 30.68 mbpd with Saudi Arabia and Libya accounting for 80 percent of the increase."
In the medium-term, "oil supply prospects look slightly stronger, with recovery from Iraq and Libya coming in at a faster pace, and a game-changer in the making in the form of US light tight oil from shale."
The IEA estimated: "On a net basis, potential OPEC spare capacity remains tight in 2011 and 2012, but then eases back into a range between 5.0-6.0 percent of global demand thereafter.
"This is hardly suggestive of a sloppy market but it does hint that the supply side of the equation, barring major outages, is capable of matching trend demand growth at, or slightly above, 1.0 mbpd per year."
The IEA said: "All told, the intense tightening in market fundamentals evident during 2009-2011 could ease over the next five years."
But this did not diminish "the imperative to sustain investment for the future. Developments in the Chinese and Japanese power sectors in the last year have illustrated that oil demand can at times surprise to the upside too."
It said that "global oil demand has been running ahead of supply since economic recovery began in 2009 but has been doing so in a more pronounced fashion since mid-2010.
"There may therefore be a way to go before the sunny uplands of comfortable medium-term supply are reached."
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