It is too soon to call an end to the oil price crisis that has engulfed global energy markets in the past year, the West’s oil watchdog warned on Tuesday.
World oil prices, which have fallen by more than $30 a barrel since the July peak, touched a three-month low on Tuesday with the International Energy Agency (IEA) reporting that global oil supplies would be more than adequate to meet a slightly-higher-than-expected increase in demand next year.
However, the IEA was cautious about whether the market had now reached a turning point. ”We would hesitate before automatically extrapolating the recent price trend,” said the organisation.
Within hours of the release of the IEA’s sober assessment of the outlook for oil, the United States Energy Information Administration said US demand had fallen by 800 000 barrels a day in the first half of the year, the largest decline for 26 years. It blamed slower economic growth and higher petrol prices.
The Paris-based EIA also cut its forecast for US oil demand for the third quarter, but revised it upwards for the final three months of the year.
The IEA had earlier said its ”all other things being equal” forecast suggested easing fundamentals and potentially higher stocks of crude in the months to come.
But it warned that such a scenario was threatened by a number of factors; disruption to supplies from Nigerian and Azerbaijan, storms hitting the Gulf of Mexico and potential delays to projects in Brazil, Canada and Russia.
The threat posed by geo-political unrest to world oil supplies was underlined on Tuesday, when BP closed the Baku-Supsa gas pipeline that leads to the Georgian port of Supsa because of the conflict between Georgia and Russia.
Last week, the Baku-Tbilisi-Ceyhan oil pipeline, which runs close to Georgia’s capital, Tbilisi, towards the Turkish port of Ceyhan, was shut down because of an explosion unrelated to the conflict. Kurdish separatists claimed responsibility.
The IEA said political problems could hold up Iraqi and Russian supply growth and that while the Organisation for Economic Cooperation and Development (OECD) demand could prove weaker than expected, inventories remained ”worryingly flat” and demand from non-OECD countries, not least from China and the Middle East, could prove higher than expected.
”Add in ever-changing sentiment over Iran, and it looks too early to cite definitively a sea change in the market.”
Global demand
The IEA said it expects global demand for oil products in 2008 to be virtually unchanged at 86,9-million barrels a day and slightly higher at 87,8-million barrels for 2009, on demand from outside the OECD area.
Opec’s effective spare capacity is about 1,5-million barrels a day, the IEA said, but should rise later this year and into next.
At one point on Tuesday, US crude oil price hit its lowest level since May, at $112,48 a barrel. It then recovered to $116 but subsequently fell back to $113. Back in July it reached a peak of more than $147.
”Demand for Opec oil is going to be lower than its production capacity, so the market is looking forward to seeing an inventory build,” said Olivier Jakob at trading advisory company Petromatrix.
Latest figures from the US showed a surprise fall in the trade deficit with a $6-billion drop in non-oil imports offsetting higher energy costs.
US Commerce Secretary Carlos Gutierrez said the lower-than-expected deficit could prompt the department to raise second-quarter economic growth from its initial estimate of 1,9%.
”It’s a very strong month for exports,” Gutierrez said. ”The growth is coming from Brazil, it’s coming from Russia, it’s coming from India, it’s coming from the Middle East … It’s very broad-based.”
The dollar rose against the euro on news the trade gap narrowed in June, but was then hit by profit-taking.
Kurt Karl, chief US economist at Swiss Re in New York, said the better-than-expected figures ”will support growth going into the third quarter.”
However, he noted the narrowing trade deficit is more evidence that the US economy could be in a recession, because it shows consumers are buying less.
The falling oil price has brought some relief to US motorists with the price of a gallon of fuel falling below $4 for the first time since late May. The regular Lundberg survey of filling stations found the average cost of unleaded petrol has fallen by 15 cents over two weeks to $3,85. High prices have been causing soul-searching in car-dependent parts of the US.
In some areas, employers have allowed staff to compress their workload into intensive four-day weeks to reduce commuting costs. Several towns have switched police patrols on to bicycles, charities have had to cut back on meals on wheels, and rail services have reported a surge in passenger numbers.
Republicans have called for environmentally sensitive off-shore drilling to increase long-term supplies of oil — a policy that Democrats, including presidential candidate Barack Obama, have reluctantly begun to endorse.
The drop in oil prices, technically a bear market after a fall of 20% from the peak, has contributed to a rally on Wall Street. — guardian.co.uk