[R-G] Oil supply lagging demand, says IEA

[Richard Menec]

http://www.ft.com/cms/s/a38a39ae-4729-11dc-9096-0000779fd2ac.html

Oil supply lagging demand, says IEA

By Javier Blas in London

Published: August 10 2007 12:27 | Last updated: August 10 2007 12:27

Opec needs to increase its production in the short-term as world oil supply 
is lagging demand, the industrialised countries' energy watchdog warned on 
Friday.

The International Energy Agency said in its monthly oil report that with 
volatility in financial markets elevating concerns about future demand, "the 
last thing the global economy needs is higher oil prices".

"Undersupplying the market in this context could bear considerable risks," 
the IEA said, referring to ongoing Opec crude oil production cuts. The 
watchdog warning implies that oil prices could rise again if the cartel 
keeps its production unchanged.

The IEA said the Organisation of the Petroleum Exporting Countries increased 
marginally its supply in July as Iraq and Nigeria raised production.

But it warned that the increase of about 385,000 barrels a day did not 
signal an Opec's policy U-turn towards boosting production, but rather local 
factors in both countries, that have been rattled by attacks against the 
hydrocarbon industry.

Saudi Arabia, the cartel's leader, kept its supply almost unchanged at 8.6m 
b/d. The kingdom's output is about 6 per cent below this time last year. 
Opec controls about 40 per cent of the world's oil production.

The IEA urged the oil cartel to raise its production in the short- term. 
Opec is unlikely to increase its output quotas at its September meeting and 
might wait until December, Opec ministers had hinted in the last week.

But the energy watchdog warned that "delaying further increases in OPEC 
supply to beyond September implies cargoes would only reach consuming 
markets very late in 2007."

Crude oil prices last week hit an all-time high of $78.77 a barrel, but 
since then has fallen by about 9 per cent to $71.59 a barrel as speculators 
unwound bets on rising prices.

Nymex September West Texas Intermediate was in morning trading down 64 cents 
to $70.95 a barrel as the commodities market suffered the impact of the 
credit turmoil. ICE September Brent fell 39 cents to $68.92 a barrel.

Oil inventories in industrialised countries in the second quarter rose by 
0.73m b/d below the last five years average for the quarter of 0.85m b/d. 
The energy watchdog said it expects a counter-seasonal stock-draw in the 
third quarter as demand outstrip supply.

The IEA keep its forecast for production and demand unchanged from June 
report. It expects consumption in 2007 of 86.0m b/d, rising in
2008 to 88.2m b/d. Non-Opec output this year will be at 50.0m b/d and next 
year will increase to 51.0m b/d.

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