IEA sees brighter future for markets

Pressure on world oil markets should ease next year as demand growth slows, production rises and the need decreases for crude from Opec, the International Energy Agency (IEA) said today.

But it warned its predictions were more vulnerable than usual to uncertainties as economists debate the length of the US economic slowdown and projects for new oil and refining capacity are prone to delays.

The Paris-based agency said world oil demand growth would increase at a rate of 860,000 barrels per day next year, reaching a total of 87.7 million bpd, down from growth of 890,000 bpd this year.

It is the IEA's first assessment of the market balance for 2009 in a monthly report.

The monthy snapshot also revised upwards demand for 2008 by around 80,000 bpd compared with its previous report, Reuters said.

Demand for oil products is still strong in developing countries. That partly offsets lower consumption in the developed world, notably from the biggest energy user the US, which has changed its habits as oil prices have leapt to records above $145 a barrel.

To try to calm markets, Opec's biggest producer Saudi Arabia has said it would pump 9.7 million bpd in July, up from 9.45 million bpd in June.

The IEA said the extra Saudi oil had helped to increase Opec production by 350,000 bpd in June, pushing output from the 13-member group to 32.4 million bpd.

Higher Opec output should allow stocks to build, but potentially reduces the cushion of spare capacity available for emergencies.

Even so, the IEA predicted overall Opec spare capacity would rise by about 1 million bpd by the end of this year, boosted by increases from Saudi Arabia, Angola, Iraq and Nigeria.

"We do see the potential for a build in spare capacity in 2009, that should help to improve the situation," said Lawrence Eagles of the IEA.

"If Saudi Arabia increases output as it has pledged to do in July through to the end of the year, then that's going to help build stocks as well."

Non-Opec supply growth in 2009 is estimated at around 640,000 bpd, taking production from beyond the producer group to 50.6 million bpd, helped by strong growth from the Caspian region, as well as from Brazil, Asia and biofuels.

But output from top producer Russia is expected to slip to 10 million bpd in 2009, the first year-on-year decline since 1996, after levelling off at 10.1 million bpd this year.

In line with more alternatives and slightly weaker demand, the need for Opec crude will ease to between 31.1 million bpd and 31.2 million bpd, down by some 600,000 bpd from 2008.

A major source of price strength this year has been a shortage of diesel and other refined products, which should also become less acute.

"The diesel situation is still going to be tight in 2009, but we do see a slight improvement to supplies once refinery expansions and upgrading of capacity in China and India take place," Eagles said.