The International Energy Agency trimmed its 2008 global oil forecast by 80,000 barrels a day to 86.8 million, the latest in a series of cuts. This translates to 2008 growth of 0.9 per cent, or 800,000 barrels a day, down from the 1.2 per cent, or 1 million barrels, in the previous monthly forecast. The agency expects US demand to drop by 2.5% this year.
The IEA also observes, however, that supply growth is not keeping up with even this modest increase in demand, and it significantly cut its supple-growth forecasts for non-OPEC countries. FT:
However, the agency warned that so far, there were “very few signs of slowing demand in non-OECD countries where economic growth is far more significant than price in determining demand”.
The cut in the IEA’s forecast for oil demand growth was overshadowed by a larger cut in forecast supplies. The agency cut its forecast for non-Opec supply growth to just 455,000 b/d, or 225,000 b/d below last month’s forecast. It expected most of the non-Opec fresh output to be in the form of biofuels, which would account for 72 per cent of the supply increase.
The non-Opec supply growth forecast for 2008 is now below the growth achieved by the group both in 2007 and 2006, in spite of significantly higher oil prices.
The agency also warned that the imbalance between demand and supply forced a counter-seasonal drop in rich countries’ oil inventories in April. It estimates that stocks fell in April by 8.1m barrels, compared with a traditional increase in April of about 30m barrels.
It warned that current prices could “impinge upon growth prospects”, even though the global economy is more resilient to rising oil prices. “Globally, the high oil price is contributing to inflationary pressures,” it said
All this said, with demand growth of less than 1%, unless supply is shrinking, it’s hard to believe that current oil prices are sustainable. Oil prices are up more than 40% for the year.
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