Global oil demand could buck seasonal trends and remain strong in the second quarter of 2006, the International Energy Agency (IEA) said on Tuesday, warning that new developments in the oil market could compensate for a traditional fall in demand at the end of the northern hemisphere winter.
“In oil market legend, the weak second quarter hangs like the Sword of Damocles. But in reality, the sword is only myth. The oil market is a complex entity,” the IEA said in a reference to a Greek myth about a feeling of impending doom.
One of the key developments identified by the IEA was a trend towards increased inventory levels because some producing countries faced instability, notably Iran and Nigeria.
“Recent events in the Middle East and West Africa have underscored uncertainties on the supply side and are likely to reinforce the recent trend towards a higher level of inventory demand,” the IEA said.
The IEA said that that demand for refined products could fall during the second quarter but that demand for crude oil could increase in Europe, Asia and the United States.
In 2006 as a whole, demand was expected to increase by 2,2%, bringing global consumption to 85,1-million barrels per day (mbd).
“Key factors underpinning this projection are a rebound in Chinese demand growth and more robust US demand growth versus a hurricane-affected 2005 baseline,” the IEA said in its monthly review of the oil market.
Demand in the US hit an all-time monthly high of 21,9 mbd in December, growing by 1,7% compared with the same month in 2004.
The agency also said that it had revised down its forecast for growth of demand for oil in 2005 to 1,3% from a previous estimate of 1,4%.
Comments by the IEA on demand in the second quarter are significant before a meeting of Opec oil-producing countries on January 31.
Some members of the cartel are thought to be in favour of cutting the organisation’s official production quota of 28 mbd amid concerns that the market is in danger of being over-supplied.
However, the IEA commented: “Stronger prices in the last seven to 10 days… have led to counter-arguments in favour of holding production unchanged for a while longer.”
The IEA said that supply from Opec in December had been 29,3 mbd.
The agency also underlined that Opec spare capacity had increased slightly in 2005, but remained “below comfort levels” at less than 1,5 mbd.
Commenting on production from non-Opec countries, the agency said that output could increase in 2006 after “treading water” in 2005.
“Russian supply growth is accelerating again, while a modest US Gulf of Mexico rebound is likely,” the IEA said.
The agency also pointed to “healthy growth” in production from Brazil, Angola and other West African projects, the Caspian Sea area, southeast Asia, Canada and Norway. – AFP