The International Energy Agency has cut its forecasts for world oil demand, blaming the impact of high prices and mild weather as it watches for signs of demand destruction in the wake of the US credit crunch.
In its latest monthly report, the IEA said its latest figures show mild summer temperatures in Europe and the Pacific have dented fuel oil and heating oil demand and expectations of another mild winter are already being reflected in lower-than-seasonal stock buying.
But the Paris agency, which advises 26 industrialized consumer countries, was unable answer the burning question of whether the US credit woes will sufficiently dent the world economy to curb oil demand. It's just too early to call, it concluded, promising to closely monitor IMF economic forecasts for signs of a slowdown.
The demand implication meant the IEA was able to trim its estimates for the "call" on OPEC crude and stocks by 200,000-300,000 b/d for the second half of 2007 and for 2008. The average call on OPEC's oil fell to 31.1 million b/d for 2007 with the 2008 average at 31.4 million b/d.
The apparently bearish revision to the "call" conceals, however, that even with the requirement for OPEC's oil at 32.4 million b/d in the fourth quarter, that is still 2 million b/d above the cartel's estimated August actual production level of 30.4 million b/d.
OPEC's unexpectedly large 500,000 b/d planned real increase in official crude production levels this week could mitigate this apparent supply gap which the IEA figures suggest. But close attention to OPEC's targets do little to reinforce this view.
From November 1, the group's official target will rise to 27.25 million b/d, 1.45 million b/d more than the previous 25.8 million b/d target set in February. The increase is designed to legitimize close to 1 million b/d of current
overproduction and add an additional 500,000 b/d of physical supply.
The upshot it would seem, if both OPEC and the IEA numbers are to be believed, is that the world is headed for a stock-destroying supply shortfall of over 5 million b/d for the end of 2007.
Hardly a surprise then, that oil prices hit all time record high's Wednesday when weekly US data showed a 7.1 million barrel drop in crude stocks.
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