Global oil demand growth withstands high prices - IEA

A healthy world economy is underpinning oil demand growth, but high prices are slowing consumption in the United States - the world's biggest fuel burner, the International Energy Agency said yesterday.

The energy adviser to 26 industrialised countries also said output constraints in Nigeria and Iraq had deflated Opec's spare capacity to only 1.9 million barrels per day (bpd).

Supply disruptions to the 85 million bpd world market - whether real or threatened - have driven oil to historically high levels near $70, leading some to suggest that record prices will brake demand expansion.

"Strong economic growth is an important counterbalance, but on the whole we're seeing evidence of high price effects coming through," said Lawrence Eagles, head of the IEA's oil industry and markets division.

The Paris-based agency trimmed 2006 global oil demand growth by 10,000 barrels per day to 1.24 million bpd, with the United States seen as the clearest case for lower consumption.

Projected US demand growth of 0.9 per cent for this year was well below what might be typically expected given forecast economic growth of up to four per cent, the IEA said.

"High oil product retail prices and comparatively low natural gas prices will act as a drag on demand through the end of the year," it said.

Earlier this year US retail gasoline climbed above the $3 a gallon pain threshold for motorists there.

China, the world's second biggest oil consumer, offered a more positive outlook.

It was expected to post growth in apparent demand of 8.6 per cent before slowing to a still robust 5.9 per cent during the second half of 2006, said the IEA. Higher retail fuel prices were likely to encourage refiners in China to increase processing rates in the near term, boosting apparent demand growth.

But the rebound in consumption was expected to be temporary, with the higher prices having a dampening effect later.

Analysts also said data from China were unreliable and possibly distorted by stock-building.

The Organisation of the Petroleum Exporting Countries was pumping as much as possible to meet robust demand.

But its spare capacity was limited to 1.9 million bpd because of a combined outage of 800,000 bpd from members Iraq and Nigeria.

Militant attacks have shut in just over 500,000 bpd in Nigeria and Iraq's oil sector is struggling to recover from decades of underinvestment, wars and sanctions.

On top of that, the IEA said heavy, hard-to-refine crude on offer from Iran, Kuwait and Saudi Arabia was largely unwanted with producers unwilling to offer steep discounts.

"Both these constraints on supply suggest that effective spare capacity could remain thin for some time to come," it said.

Opec produced 29.8 million barrels per day in May, up 215,000 bpd from a revised April figure, according to the IEA.

The world's top exporter Saudi Arabia pumped 9.35 million bpd last month, the IEA said, up 100,000 bpd from April when a seasonal decline in demand from refiners curbed output.

A senior Opec delegate said yesterday the kingdom's production for May ran even lower - at 9.05 million bpd versus 9.1 million bpd in April.

The requirement for Opec's oil was trimmed to 28.8 million bpd in the third quarter and 29.5 million bpd in the fourth.

Non-Opec supply growth for 2006 was cut by 100,000 bpd to 1.1 million bpd.