The oil market looks set to tighten further this year, with oil inventories shrinking as supply disruptions and political tensions in the Middle East and North Africa persist for months, the International Energy Agency said Tuesday.
The oil market looks set to tighten further this year, with oil
inventories shrinking as supply disruptions and political tensions in the
Middle
East
and
North Africa
persist for months, the
International Energy Agency said Tuesday.
However, although today's supply picture could imply rising prices, there are
preliminary signs that the current high cost of oil may already be reducing
demand growth, the IEA said. "The surest remedy for high prices my
ultimately prove to be high prices themselves," it said.
This mixed picture mirrored moves in oil markets Tuesday morning. Demand fears
sent crude futures down briefly in Asian trading, but they quickly bounced back
as attention returned to
Libya
.
At 1215 GMT, the May Brent contract on
London
's ICE
futures exchange was 65 cents, or 0.5%, higher at $124.62 a barrel.
The emerging stalemate in the Libyan civil war raises the prospect that oil
exports from the country, which averaged around 1.3 million barrels a day in
2010, will remain shut down for months longer, the IEA said in its monthly Oil
Market Report.
Despite the positive development that the rebel-held Libyan
port
of
Tobruk
managed to export a crude oil cargo of around 1 million barrels last week,
recent attacks on oil fields in eastern
Libya
by
forces supporting Gadhafi mean further exports are unlikely, it said.
On top of the Libyan shutdown, a further 3 million barrels a day of regional
oil production could potentially be affected by political unrest in places like
Oman
,
Sudan
,
Yemen
and
Egypt
, the
report said. Coupled with shrinking Organization for Economic Co-operation and
Development stocks and a smaller margin of spare capacity at the Organization
of Petroleum Exporting Countries, "even if only fraction of this is
genuinely prone to disruption, it does highlight the degree of uncertainty
unleashed by the so-called Arab awakening," the IEA said.
However, the extent to which the supply picture will drive prices higher is
uncertain, the report said.
"Had the Libyan crisis emerged at a time other than during peak European
refinery maintenance, $125 a barrel might already be a distant speck in the
rear view mirror," it said. Refinery maintenance shutdowns probably peaked
in March and the usual seasonal rebound in activity could add between 2 million
and 3 million barrels a day to demand by the summer, the report said.
Despite OPEC's limited response to the Libyan crisis in March, "we are
hopeful OPEC will raise supplies where they can and offer barrels to
refiners," and ease the pressure this demand rebound will have on the
market, said David Fyfe, editor of the Oil Market Report.
Saudi Arabia has the scope to expand exports in May because it "throttled
back production" in the second half of March in response to muted demand
due to European refinery shutdowns and the Japanese earthquake, the report
said.
Preliminary data for January and February also suggest that demand growth may
be slowing, the report said. "These trends could signal that high oil
prices may have already started to bite," particularly in
China
and
other parts of
Asia
.
The steady shrinking of year-on-year global oil demand growth, from 4.8% in
December to 2.9% in February, is, "reminiscent of 2008, when prices were
last scaling to such heady heights," the IEA said.
In 2008, oil prices soared above $100 a barrel early in the year, reaching a
peak of $147 a barrel in July. High prices coupled with an economic slowdown
led to a dramatic reduction in demand and a subsequent collapse in the oil
price.
The IEA maintained its estimate for 2011 oil demand growth of 1.4 million
barrels a day.
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