Oil demand surprisingly strong, price rise a threat, says IEA
Posted: 12 November 2009 1842 hrs

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PARIS - Global oil demand is heading higher than expected as economic recovery gathers pace notably in China, but rising prices could derail expansion, the IEA said on Thursday.

The latest data suggests "that global (oil) demand is well on track for resumed year-on-year growth in the fourth quarter of 2009, for the first time since the second quarter of 2008," the International Energy Agency said.

It raised its estimate for global oil demand this year by 210,000 barrels per day, and for next year by 140,000 barrels per day "following stronger-than-expected preliminary data" for North America and "buoyant demand" in Asia and the Middle East."

The upward revision for demand came "on the back of surging demand in China and Saudi Arabia, as well as somewhat higher-than-anticipated data for the US."

The agency also noted in its monthly review of energy markets that there was a difference of view within the Organization of Petroleum Exporting Countries (OPEC).

Some "price hawks" spoke of a need to reduce output further because stocks of oil in the market remained high.

However "there seems to be a quasi-consensus among others that an increase in output targets may be in the offing if prices rose significantly.

"Saudi Arabia has unofficially branded 70-75 dollars a barrel as an ideal target price," for OPEC oil, but the market price had risen above this level recently.

Oil weakened on Thursday as traders awaited the weekly update on US energy inventories.

New York's main contract, light sweet crude for delivery in December, slid 36 cents to 78.92 dollars per barrel. Brent North Sea crude for December delivery was down 25 cents to 77.70 dollars.

Crude futures had climbed Wednesday on China's strengthening economy.

The IEA, the energy-policy arm of the OECD, observed: "OPEC members, especially in the Middle East Gulf, are worried that higher oil prices could threaten the global economic recovery and further strain relationships with consuming nations ahead of climate change talks in Copenhagen (in December)."

In the 30 leading industrialised countries covered by the Organisation for Economic Cooperation and Development, the rate at which demand for oil had shrunk was now easing, the IEA said.

However, demand in Europe "plummeted by 6.7 percent year-on-year in September," on the basis of initial data.

"The recent price spike, if further extended, risks derailing the recovery," the IEA said, while also stressing that estimates of the underlying forces in the oil market, and how they would work out, were uncertain.

This was partly because demand for oil had fallen heavily at the height of the global economic crisis, because stocks of oil were high, and because data was increasingly difficult to obtain from China where a withdrawal of stimulus and possible economic overheating could set back activity.

The IEA also highlighted substantial smuggling of oil products from Iran which was having to import "some 40 percent of its domestic gasoline (petrol) requirements at great cost" despite rationing.

Meanwhile, the IEA also raised its estimates for global oil supplies.

- AFP /ls