IEA Predicts Bumpy Ride for Oil Amid Non-OPEC Supply Cuts

The International Energy Agency cut forecasts for oil supplies from outside OPEC this year because of lower exports from Sudan and Syria, cautioning that reduced spare output capacity raises the risk of a price surge.

Producers not in the Organization of Petroleum Exporting Countries will provide 53.5 million barrels a day this year, or 200,000 a day less than the IEA forecast last month. The agency kept estimates for global oil demand in 2012 unchanged, predicting fuel use will remain “stunted” by the economic slowdown and higher prices. Disappointing non-OPEC output will make the market more reliant on a “slim buffer” of spare production capacity from a few OPEC nations, the IEA said.

“A real risk of another year of underperforming non-OPEC supply shines a spotlight once more on OPEC spare capacity,” the Paris-based agency said in its monthly market report today. “Non-OPEC output should recover as 2012 progresses. Until then, the market’s relatively slim ‘buffer’ suggests a bumpy ride in the months ahead.”

Supplies from non-OPEC nations, responsible for about 60 percent of the global total, were cut by 750,000 barrels a day in the first quarter amid fighting in Yemen, outages in the North Sea, sanctions against Syria and the transit dispute between Sudan and south Sudan. That leaves customers more dependent on OPEC’s effective spare capacity, which at 2.75 million barrels is close to levels that can cause a “sustained rise” in prices, the agency said. The figure excludes Iraq, Nigeria, Libya and Venezuela.

Attacks, Dispute

Brent crude traded at almost $126 a barrel today on the ICE Futures Europe Exchange in London, having advanced 17 percent this year. Prices soared to a record $147 in July 2008 as unused capacity in OPEC narrowed.

South Sudan shut production in January after accusing its northern neighbour, from which it became independent in July, of stealing its crude. The dispute has removed about 350,000 barrels a day from global markets, the IEA estimates. In Syria, attacks on oil infrastructure by rebels against leader Bashar al-Assad will cut output by 30,000 barrels a day to 170,000 by the end of the year, according to the agency.

Yemen’s production fell to 160,000 barrels a day in the first quarter, almost half the average levels of 2010, amid attacks on the Marib crude pipeline, the IEA said.

Worldwide crude consumption will increase by 800,000 barrels a day, or 0.9 percent, to 89.9 million barrels a day, the agency forecast. The agency had cut its demand forecast in six consecutive reports.

‘Subdued Economic Backdrop’

“The relatively subdued economic backdrop” and “high oil prices both restrain any upside momentum for consumption,” according to the agency.

Oil inventories held by companies in developed economies stayed below their five-year seasonal average for a seventh month, according to the report. Stockpiles in industrialized nations increased by a “muted” 13.6 million barrels to 2.6 billion in January. That’s equivalent to 57.8 days worth of consumption, the IEA estimates.

“Inventories, notably crude in Europe and the Pacific, look very tight in absolute terms,” the agency said. “Put simply, a post-recession OECD industrial stock overhang has gradually been whittled away.”

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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