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IEA sees higher demand in 2014, cites recovery in developed nations

01.21.2014  |  HP News Services

Global oil demand will increase this year more than previously forecast, the International Energy Agency said, though a ban on US crude exports may crimp output growth.

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By GRANT SMITH
Bloomberg

Global oil demand will increase this year more than previously forecast, the International Energy Agency said, though a ban on US crude exports may crimp output growth.

World consumption will climb by 1.3 million bpd or 1.4%, to a record 92.5 million bpd, the Paris-based IEA said Tuesday in its Oil Market Report. The increase of 90,000 bpd from last month follows the first year of annual demand growth in developed nations since 2010, it said. 

Meanwhile, US restrictions on oil exports may mean its surging domestic production hits a “crude wall” that curbs further expansion, the IEA said.

“Upside risks to oil demand growth are much more relevant this year than the same period last year, where concerns were for downside risks to materialize,” said Miswin Mahesh, an analyst at Barclays in London. “Demand- supply metrics in the oil market are moving toward a relatively better equilibrium this year as further North American production gets on board.”

Brent crude has lost 3.6% in the past year, trading at about $107.50/bbl in London on Tuesday, as burgeoning North American shale output curbs imports into the US, the world’s biggest oil user. Prices have also retreated as a temporary agreement on Iran’s nuclear program eased concern that tensions in the region could escalate and as Libya set about restoring production curtailed by protests.

OPEC Output

Higher forecasts for global fuel demand prompted the IEA to increase estimates for the amount of crude needed from the Organization of Petroleum Exporting Countries. OPEC’s 12 members, responsible for about 40% of global oil supplies, will need to provide an average of 29.4 million bpd in 2014, or about 200,000 bpd more than the IEA had forecast in last month’s report.

OPEC’s production was about 400,000 bpd higher than the demand for its crude in December, according to the IEA. The group’s supply rose for the first time in five months, increasing by 310,000 bpd to 29.82 million bpd because of higher output from Saudi Arabia, the biggest member and de facto leader, and the United Arab Emirates. OPEC will next meet on June 11 in Vienna.

Saudi Production

Saudi Arabia boosted output by 75,000 bpd to 9.82 million bpd last month, the IEA said. Production in Iran, which in November secured some sanctions relief in exchange for temporarily curbing its nuclear program, rose by 40,000 bpd last month to 2.75 million bpd. Iraq was the only OPEC member where production fell in December, declining by 25,000 bpd to 3.07 million bpd.

Laws preventing the export of crude from the US, where the production surge last year was among the biggest for any country in history, “could have an adverse impact in continued investment in light tight oil and thus continued growth in production,” an event the IEA refers to as the “crude wall.”

“That ‘wall’ now seems to be looming larger than ever,” the agency said. The additional supply has so far been absorbed by US refiners, who have increased overseas sales of finished products that are not subject to export restrictions, it said.

Global oil demand growth in 2014 will be led by China, which will account for 28% of the 1.3 million bpd increase. The nation’s consumption will expand by 369,000 bbl to 10.49 million bpd. The US was the single-biggest driver of growth last year.

Inventory Buffer

Total oil inventories in the Organization for Economic Cooperation and Development are the furthest below their five-year average in more than a decade, according to the IEA. Stockpiles of crude and refined products were 99.5 million bbl below the five-year mean in November, at 2.6 billion bbl, after a plunge of 53.6 million. That was the steepest decline since 2011.

“There is hardly an inventory buffer,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a consultant in London. “The fact that demand increases for much of 2013 was coming from unfamiliar territories -- the OECD -- meant that it was overlooked for many months. If this year has any surprises in stock, they are more likely to come from the demand side.”

The agency trimmed estimates for non-OPEC supplies in 2014. Producers, led by the US, Canada and Brazil, will raise output this year by 1.7 million bpd to 56.4 million. That’s 100,000 bpd less than projected in last month’s report.



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