/ 13 February 2008

IEA: Oil market could be set for lengthy slowdown

The world oil market could be set for a lengthy slowdown, the International Energy Agency (IEA) said on Wednesday, signalling a sharp shift in the climate that pushed the oil price to $100 last month.

“Just as the demand shock of 2004 shaped the oil market for the next three years, so too could the pending slowdown,” the IEA said in its monthly review of oil trends.

Allowing for a weather-related rebound in demand, “the underlying trend is even weaker”, the agency said. “Changes are taking place in the oil market — not just to demand, but also to the supply side.”

With the price now about $90 per barrel, the IEA said it had revised down demand for 2008 in the light of weaker world growth prospects, and it reported firm supplies in January.

It explained: “An economic slowdown has the potential to change the landscape over the next few years — depending on how deep it is and how long it lasts.”

The IEA cut its forecast for world demand for oil this year by 200 000 barrels per day, saying it expected world demand in 2008 to grow by 1,9% instead of 2,2% forecast last July.

In January, world oil supply had risen by 745 000 barrels per day to 87,2-million barrels “on new output from Brazil and recovering non-Opec [the Organisation of the Petroleum Exporting Countries] output elsewhere”.

Supplies from Opec had remained close to 32-million barrels per day on increased output from Angola, the United Arab Emirates, Saudi Arabia and Kuwait, but production had eased in Iraq, Nigeria and Qatar.

However, Opec’s real spare capacity had risen to 2,4-million barrels per day in January.

The IEA noted that industrial stocks of oil in the area covered by the Organisation for Economic Cooperation and Development (OECD) had fallen by 39,5-million barrels in December. The agency warned that oil inventories remained low, “as does spare capacity”.

Geopolitical issues in Nigeria, Venezuela, Iraq and Iran had helped push up prices. Despite the pressures now bearing down on demand, there was “clearly” a need to rebuild stocks, the IEA said.

The IEA is based in Paris and is an offshoot of the OECD. — AFP