Global oil demand will continue to grow this year but this increase in consumption will be short-term as record high prices are expected to restrain growth next year, the leading energy industry watchdog said yesterday.
The International Energy Agency expects the increase in demand to be met by increased supply from the Organisation of Petroleum Exporting Countries (OPEC). Output from non-OPEC states has fallen in the past three months, largely because of lower output in the North Sea and the US. US production from the Gulf of Mexico region is unlikely to return to near full output for another six months following the effect of last month's Hurricane Ivan.
The upward revision on demand by 240,000 barrels a day to 82.4 million b/d for this year, together with an increasing reliance on OPEC oil helped push prices to record highs. US benchmark crude futures rose above $54 a barrel, and Brent crude futures to a record $51.50.
The new IEA forecast for demand this year is 2.5 million barrels above the estimate at the start of the year, and underlines the extent to which forecasters have underestimated demand in a period when consumption has increased at its fastest rate in 28 years. The Paris-based agency said higher than expected demand in Asia and the former Soviet Union accounted for the bulk of the increase.
Estimates for Chinese demand growth, which has been a key factor for the increase, was trimmed for the fourth quarter and 2005 as high prices, energy-saving measures, and fuel switching begin to take effect.
Chinese demand growth halved to 6 per cent in August from 12 per cent in July, which in turn was less than half the 25 per cent rise in demand during the second quarter.
The IEA reduced its 2005 estimate by 70,000 b/d to an average of 83.9 million b/d for next year.
"The cut reflects expectations of slower economic growth and the impact of high oil prices on demand and on the economy."
The agency warned that the structural imbalance between supply and demand in oil production would not be resolved in the near future. It was also critical of the level of investment in refineries, which turn crude oil into petroleum products such as gasoline, jet-fuel oil, diesel and heating oil.
Refineries are working near to capacity, providing their owners with their best returns in more than a decade, but few are committed to significant capacity expansion in the near future.
OPEC deputy oil ministers met in Jeddah yesterday to discuss long-term oil prices, which could lead to a rise in the preferred price range from December.
