By JAMES HERRON
The International Energy Agency (IEA) on Friday slashed its
2012 oil demand growth forecast for the second time in just a
few weeks as the economic outlook weakened, just as oil
production from the Organization of Petroleum Exporting
Countries reached its highest level since October 2008.
The IEA has cut half a million barrels a day from its 2012 oil
demand growth forecast since the start of this year, a change
that it said leaves the oil market with enough flexibility to
adjust to any loss of Iranian crude exports due to sanctions
that will take effect in July.
This shows that basic oil supply and demand figures do not
support prices at their current level of around $118/bbl for
Brent crude, said analysts at Bernstein Research in a note to
Despite this, the IEA, which represents the interests of major
energy consuming rich countries, said the perception of the
risk of a supply disruption in Iran or other trouble spots like
Sudan is preventing stubbornly high oil prices from
"The big hit to demand numbers for 2012 is Europe's significantly weaker
economic picture," said David Fyfe, the head of the IEA's oil
markets division in an interview with Dow Jones Newswires.
Demand in North America isn't quite as weak as expected, but
still pretty muted, he added.
The IEA said in its monthly market report that it expects oil
demand to grow by 0.8 million bpd to 89.9 million bpd in
This is 0.3 million bpd lower than its January forecast, a
cut that was widely expected after the International Monetary
Fund reduced its global economic growth forecasts to 3.3% from
4.0% last month.
Asia is the source of almost all oil demand growth in 2012,
although the picture there is mixed.
The IEA trimmed its forecast for China as economic growth
slowed and oil demand came to "near stagnation" in
However, there is the possibility that China could decide to
add to its strategic petroleum reserve this year, which could
boost its demand by 200,000 bpd of oil, Fyfe said.
Japan's oil demand is growing rapidly, up 9.5% year-on-year in
December, as it uses fossil fuels to fill the gap left by
post-tsunami shutdowns in its nuclear industry.
As demand weakens, oil supply looks more comfortable.
The IEA estimated that OPEC produced 30.9 million bpd of
crude oil in January, its highest level since October 2008 and
1 million bpd above the amount of crude the world needs from
the group in 2012.
"The market looks reasonably well supplied for 2012," and
should be able to handle without too much trouble the European Union embargo on 600,000
bpd of Iranian oil imports that will come into force in July,
Members of OPEC agreed in December to reduce their collective
to output to 30 million bpd for 2012, but the group's main
swing suppliers, Saudi Arabia, Kuwait and the United Arab
Emirates, did not reduce output in January to make way for
growing Libyan production, the IEA said.
Dow Jones Newswires