IEA Sees Higher Oil Demand on Recovery in Developed Nations

Photographer: Eddie Seal/Bloomberg

Brent crude has lost 4.3 percent in the past year, trading at $106 a barrel in London today, as burgeoning North American shale output curbs import from the U.S., the world’s biggest oil user. Close

Brent crude has lost 4.3 percent in the past year, trading at $106 a barrel in London... Read More

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Photographer: Eddie Seal/Bloomberg

Brent crude has lost 4.3 percent in the past year, trading at $106 a barrel in London today, as burgeoning North American shale output curbs import from the U.S., the world’s biggest oil user.

Global oil demand will increase this year more than previously forecast, the International Energy Agency said. A ban on U.S. crude exports may crimp output growth, the Paris-based group said.

World consumption will climb by 1.3 million barrels a day, or 1.4 percent, to a record 92.5 million barrels a day, the IEA said today in its Oil Market Report. The increase of 90,000 barrels a day from last month follows the first year of annual demand growth in developed nations since 2010, it said. U.S. restrictions on oil exports may mean its surging domestic production hits a “crude wall” that curbs further expansion, the IEA said.

“Upside risks to oil demand growth are much more relevant this year than the same period last year, where concerns were for downside risks to materialize,” Miswin Mahesh, an analyst at Barclays Plc in London, said by e-mail yesterday. “Demand-supply metrics in the oil market are moving toward a relatively better equilibrium this year as further North American production gets on board.”

Brent crude has lost 3.6 percent in the past year, trading at about $107.50 a barrel in London today, as burgeoning North American shale output curbs imports into the U.S., the world’s biggest oil user. Prices have also retreated as a temporary agreement on Iran’s nuclear program eased concern that tensions in the region could escalate and as Libya set about restoring production curtailed by protests.

OPEC Output

Higher forecasts for global fuel demand prompted the IEA to increase estimates for the amount of crude needed from the Organization of Petroleum Exporting Countries. OPEC’s 12 members, responsible for about 40 percent of global oil supplies, will need to provide an average of 29.4 million barrels a day in 2014, or about 200,000 a day more than the IEA had forecast in last month’s report.

OPEC’s production was about 400,000 barrels a day higher than the demand for its crude in December, according to the IEA. The group’s supply rose for the first time in five months, increasing by 310,000 barrels a day to 29.82 million a day because of higher output from Saudi Arabia, the biggest member and de facto leader, and the United Arab Emirates. OPEC will next meet on June 11 in Vienna.

Saudi Production

Saudi Arabia boosted output by 75,000 barrels a day to 9.82 million a day last month, the IEA said. Production in Iran, which in November secured some sanctions relief in exchange for temporarily curbing its nuclear program, rose by 40,000 barrels a day last month to 2.75 million a day. Iraq was the only OPEC member where production fell in December, declining by 25,000 barrels a day to 3.07 million a day.

Laws preventing the export of crude from the U.S., where the production surge last year was among the biggest for any country in history, “could have an adverse impact in continued investment in light tight oil and thus continued growth in production,” an event the IEA refers to as the “crude wall.”

“That ‘wall’ now seems to be looming larger than ever,” the agency said. The additional supply has so far been absorbed by U.S. refiners, who have increased overseas sales of finished products that aren’t subject to export restrictions, it said.

Global oil demand growth in 2014 will be led by China, which will account for 28 percent of the 1.3 million barrel-a-day increase. The nation’s consumption will expand by 369,000 barrels to 10.49 million barrels a day. The U.S. was the single-biggest driver of growth last year.

Inventory Buffer

Total oil inventories in the Organization for Economic Cooperation and Development are the furthest below their five-year average in more than a decade, according to the IEA. Stockpiles of crude and refined products were 99.5 million barrels below the five-year mean in November, at 2.6 billion barrels, after a plunge of 53.6 million. That was the steepest decline since 2011.

“There is hardly an inventory buffer,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a consultant in London. “The fact that demand increases for much of 2013 was coming from unfamiliar territories - the OECD - meant that it was overlooked for many months. If this year has any surprises in stock, they are more likely to come from the demand side.”

The agency trimmed estimates for non-OPEC supplies in 2014. Producers, led by the U.S., Canada and Brazil, will raise output this year by 1.7 million barrels a day to 56.4 million. That’s 100,000 a day less than projected in last month’s report.

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 at sev@bloomberg.net

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