July 13 (Bloomberg) -- The International Energy Agency, an adviser to 26 oil-consuming countries, said oil demand will accelerate and rise 2.1 percent next year, a sign that prices at $60 a barrel have done little to restrain growth.

Consumption will increase by 1.75 million barrels a day, the Paris-based agency said today in its first projection for 2006. The group revised past data and cut its projection for demand this year by 400,000 barrels a day, to an average 83.88 million a day, reducing the rate of growth to 1.9 percent.

Surging Chinese imports and strains on producers from Saudi Arabia to Venezuela caused crude prices this year to rally 40 percent, contributing to record profit for oil companies including Exxon Mobil Corp. and hurting the airline industry. The IEA said the prospect for more oil supply and higher inventories are ``unlikely to immediately cool the market's fever.''

``We've seen oil go from $20 a barrel to $60 a barrel without any government saying they will take serious steps to curb demand,'' said Edouard Carmignac, chief investment officer for Carmignac Gestion, which manages about $3 billion in Paris, 38 percent of that in energy stocks. ``We may have to see a price of $80 or $90 a barrel to see any real impact. That could very easily happen, and that's when it will really start to hurt.''

Oil futures surged to a record $62.10 a barrel in New York on July 7, partly because of storm damage in the U.S. and terrorist attacks in London that day. Crude oil was down 12 cents at $60.50 at 2:01 p.m. in London today, after earlier gaining as much as 68 cents.

China's 2006 Rebound

The IEA lowered 2005 demand mostly because of revisions to data for earlier years. The change resulted in lower 2005 growth for the U.S. and China, the world's two biggest consumers. The increase in the U.S. was dropped to 0.8 percent from 1.4 percent, while the projection for China was reduced to 5.5 percent from 7.1 percent in last month's report.

Chinese demand growth will rebound to 7.2 percent in 2006, the IEA predicted today. Chinese oil use surged 15 percent in 2004, leading to the fastest global pace in a quarter century.

``We are in for a period of strong growth globally, particularly from China and Asia,'' Dominque Remy, head of energy and commodities at BNP Paribas, said in an interview from Paris. ``The high prices may slow it down, but just a little bit. We will have roughly five or six years during which we will have strong demand and capacity used nearly 100 percent,'' he said.

Fourth-Quarter Needs

Global oil use will reach 85.9 million barrels a day in the fourth quarter of this year, the IEA said, meaning the Organization of Petroleum Exporting Countries will need to pump 29 million barrels of crude a day in the final quarter. That fourth- quarter demand for OPEC oil, the so-called ``call on OPEC,'' was revised down by 700,000 barrels a day from its previous report, mostly because of the cut to world demand.

Barclays Capital analysts in London including Kevin Norrish said in a report today the IEA's 29 million-barrel-a-day fourth- quarter call on OPEC was too low, citing Barclays' own estimate of 32.1 million barrels a day. The IEA ``continues to cast oil supply and demand dynamics in a more bearish light than the projections made by any other major forecasting body,'' he said.

The IEA typically has lower numbers for OPEC crude oil production, and the call on OPEC, because it has much lower figures for Venezuelan crude than most forecasters.

OPEC Output Drops

Crude production by all 11 OPEC members slid 60,000 barrels a day last month to 29.3 million barrels a day, the IEA said. Gains in Iraqi exports were offset by a drop from others.

The IEA expects non-OPEC oil supply to rise by 900,000 barrels a day this year, to 51 million barrels a day, with gains in Russia and Africa offsetting declines in Europe. In addition, OPEC natural gas liquids, which is oil not classified as crude, will increase 500,000 barrels a day this year. Next year, the IEA expects non-OPEC output to increase 1.4 million barrels a day.

OPEC members have blamed high prices on a lack of refining capacity worldwide, though acknowledge that only a few members can supply significant new quantities of crude oil right now.

``OPEC spare capacity is expected to break through 3 million barrels a day in 2006 which, while well below the 5 million barrels a day average between 2000 and 2002, is a significant improvement from the 1 million evident at the end of 2004,'' the IEA report said.

The IEA's figure for the growth in 2006 demand of 2.1 percent, or 1.75 million barrels a day, was within analysts' expectations. Deutsche Bank AG's chief energy economist, Adam Sieminski, said two days ago that he expected the IEA would show world demand rising between 1.5 million barrels a day and 2 million barrels a day in 2006.

Airlines Suffer

The International Air Transport Association estimated May 30 that airlines' losses worldwide will widen to a record $6 billion this year based on the Brent crude oil price averaging $47 a barrel. The industry lost more than $36 billion between 2001 and 2004, led by U.S. carriers.

``There is no doubt that high oil prices impact global economic growth,'' IEA analyst Lawrence Eagles said in an interview from Paris. ``However, you have to bear in mind that oil prices are only one factor which impact world economic growth. They are not the exclusive determinant, and so far all the major agencies are predicting relatively robust growth for 2006.''

Eagles, who is the editor of the IEA monthly report, added that ``if prices stay high, if interest rates move higher, there is potential that demand, economic growth could slow in 2006, but certainly that's not there in the forecast at this point.''

Conservative Forecast?

The IEA estimate for 2006 demand may even prove to be conservative, said Craig Pennington, the head energy analyst at Schroders Plc in London, the U.K.'s second-largest publicly traded money manager. Oil prices rallied throughout 2004 as the IEA raised its projections for growth.

``The acceleration in demand next year is consistent with economic growth forecasts,'' he said. ``The biggest risk is that they are still underestimating demand growth next year.''

Industry oil stockpiles in Organization for Economic Cooperation and Development nations rose to 2.658 billion barrels in May and were 139 million barrels higher than a year earlier. They were equal to 54 days worth of demand, up from 53 days in April and 2.5 days more than year-earlier levels, the agency said.

While inventories are rising and new non-OPEC output is expected, the IEA said that ``even though this would appear a calming picture, it is still unlikely to immediately cool the market's fever. Current prices suggest that the strategy of offsetting lower spare capacity with stocks has not yet run its course.''

New York futures markets currently have prices over $60 a barrel for oil that will be delivered later this year, next year and most of 2007, showing that buyers and sellers expect prices to stay high for many months.

Some 5,000 options contracts were traded yesterday that give the holder the right, but not the obligation, to buy December 2006 crude futures at $70 a barrel. For options of that type, it was the highest one-day trading activity so far this year, according to Bloomberg data, a sign of growing speculative interest in higher prices.

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

Last Updated: July 13, 2005 09:27 EDT