July 9 (Bloomberg) -- The world faces an oil ``supply crunch'' after 2010 because demand will outpace the growth in production from non-OPEC countries, according to the International Energy Agency.

Output growth outside of the Organization of Petroleum Exporting Countries, led by Russia and Brazil, will be countered by a decline in Europe, the Paris-based agency said in a report today. That shrinks the cushion of excess capacity that OPEC members such as Saudi Arabia provide, the agency said.

``Despite four years of high oil prices, this report sees increasing market tightness beyond 2010, with OPEC spare capacity declining to minimal levels by 2012,'' the IEA said in its Medium-Term Oil Market Report, which is published every six months. ``Low OPEC spare capacity and slow non-OPEC production growth are of significant concern.''

Global oil demand is forecast to expand by 1.9 million barrels a day, or 2.2 percent a year on average, reaching 95.8 million barrels a day by 2012, the IEA said. The fastest growth will occur in Asia and the Middle East, it said. Brent crude oil futures prices have averaged $64.11 a barrel so far this year, down from an average $66.11 last year and $55.25 in 2005.

``Oil and gas price pressures look set to remain in the coming years,'' the IEA said. The agency, an adviser on energy issues to 26 industrialized countries, does not publish a specific price forecast.

Coal, Nuclear

Investment in coal and nuclear power may ease pressure on the oil market after about 2015, the group said. World oil- refining capacity will rise by 10.6 million barrels a day through 2012, which could help reduce prices for gasoline and other refined products, it said.

Brazil, Russia, Canada, Kazakhstan and Azerbaijan will show the biggest gains in production among non-OPEC nations over the next five years, the agency said. Those five countries will each expand output during the period by at least 500,000 barrels a day, with Brazil gaining about 1 million barrels a day, the IEA predicted.

The laggards among non-OPEC countries will be the U.K., where output will fall some 600,000 barrels a day over the period, followed by Norway and Mexico. In the U.S., oil production will rise in the Gulf of Mexico, helped by BP Plc's delayed Thunder Horse and Atlantis projects, the IEA said. The gains in the Gulf will be more than offset by reductions elsewhere in the U.S.

Higher oil prices have helped lift shares of the world's largest producers. Exxon Mobil Corp. rose 91 cents, or 1.1 percent, to a record $87.37 at 2 p.m. in New York Stock Exchange composite trading. Chevron Corp. gained $1.31 to $88.99.

Heavy Oil, Biofuels

Overall, the IEA reduced its projection for non-OPEC supply in 2011 by 1 million barrels a day since its last medium-term report in February because of revisions to data and the reduced reliability of major oil projects being completed on time.

Non-OPEC oil supply, including biofuels, is expected to tally 52.6 million barrels a day in 2012, up from 50 million barrels a day in 2007.

Since that February report, more than 3.2 million barrels a day of new projects in 2007 through 2011 ``have seen their timing slip, emphasizing the scale of the problem,'' the IEA said.

The biggest increases in non-OPEC production will come from nations that produce heavy oil, and from biofuels, rather than so-called conventional crude oil fields, the report showed.

``Our forecast suggests that the non-OPEC, conventional crude component of global production appears, for now, to have reached an effective plateau, rather than a peak,'' the report said. ``Put another way, all of the growth in non-OPEC supply over 2007-2012 comes from gas liquids, extra heavy oil, biofuels'' and by 2012 some coal-to-liquids production in China, it said.

Spare Capacity Cut

Among OPEC nations, the IEA assumes there'll be no expansion of production capacity in Iran, Iraq and Venezuela over the next five years and no resumption of some 500,000 barrels a day of long-shuttered production in Nigeria's delta swamps.

By 2012, the quantity of OPEC crude oil theoretically needed to balance world supply and demand will rise to 36.2 million barrels a day, up from 31.3 million barrels a day for this year. The IEA doesn't directly forecast OPEC production because it can't predict OPEC policy and quota levels.

The constraints in some OPEC nations along with project delays in other countries and a strengthening of world oil demand meant the IEA cut its forecast for OPEC's spare production capacity in 2009 by some 2 million barrels a day since its February report.

`Low Levels'

OPEC spare production capacity, which had risen from low levels in 2004 to almost 3 million barrels a day as of mid-2007, will increase through to 2009 and then decline to between 1.55 million barrels a day and 2.18 million barrels a day by 2012, the report showed.

OPEC's spare, or unused production capacity influences oil prices because that's the cushion of extra supply that can be brought onstream quickly when major disruptions occur elsewhere in the world. Saudi Arabia controls the most spare capacity.

``Despite an increase in biofuels production and a bunching of supply projects over the next few years, OPEC spare capacity is expected to remain relatively constrained before 2009 when slowing upstream capacity growth and accelerating non-OECD demand once more pull it down to uncomfortably low levels,'' it said.

This is the IEA's third Medium-Term report, a publication introduced as a bridge between the agency's monthly reports, which give two-year forecasts and its annual world energy outlook, which has 25-year projections.

The report also showed that Chinese oil demand will reach almost 10 million barrels a day in 2012, compared with its domestic production that year of about 3.9 million barrels a day.

To contact the reporter on this story: Stephen Voss in London at sev@bloomberg.net

Last Updated: July 9, 2007 14:47 EDT