Market needs still more oil in third quarter – IEA

The oil market still needs more supplies for the third quarter of the year, the IEA warned yesterday, despite an official stock release and increased OPEC production.

“Major producers have recognised that demand for their oil is rising as economic growth and short-term fuel substitution keep global and emerging market demand growth robust,” the International Energy Agency said in its monthly report.

“We welcome rising OPEC volumes seen in June (30.3 mbd of output), but the market needs still more oil,” the agency said.

Global demand for oil this year is now expected to be slightly higher than forecast, by 200,000 barrels per day to 89.5 million barrels per day, showing an annual increase from 2010 levels of 1.2 mbd.

Next year global demand will rise by a further 1.5 mbd to 91.0 mbd, the IEA forecast.

The IEA answered critics who argued that its decision on June 23 to release 60 million barrels for “an initial 30 days from strategic stocks to make up for an almost total cut in supplies from Libya, came too late and had failed to hold down prices.

The agency said the release was “a bridge” between rising oil demand in the third quarter and extra supplies from the Organisation of Petroleum Exporting Countries.

Acknowledging that the outlook now “is simply a more vivid version of the one underpinning the IEA action, it explained that it had not released stocks earlier when disruption in Libya pushed prices up by $10 dollars a barrel because some demand signals were then weak.

In addition, inventories appeared to be high. There was also an assumption that OPEC would move quickly to make good the shortfall.

But demand had begun to rise sharply from June and OPEC had been slow to raise output.

This caused a risk of “renewed, damaging and sustained surge in international prices in the third quarter of 2011”, so the IEA acted even though prices were edging downwards.

Demand from advanced countries in the area covered by the Organisation for Economic Cooperation and Development remained weak but was strong in non-OECD countries, the IEA said. There had been a series of interruptions to production, in addition to the cut in Libyan supplies.

Overall “the outlook this month looks slightly tighter than a month ago,” the IEA concluded.

Estimates for the first half of this year “show demand continuing to run ahead of supply.”