Published 21-01-2013, 09:03
The International Energy Agency (IEA) raised its monthly forecast for crude oil demand growth in 2013 by 240,000 barrels a day, from a prior estimate of 865,000 barrels a day to 930,000 barrels a day. That translates to total demand of 90.8 million barrels a day for this year.
A surge in the amount of oil processed by refineries, increased infrastructure spending, stronger electricity use and increased rail usage in China underpin the expected increase, the agency said.
Shifts in Chinese demand are a crucial indicator for the oil market. The country accounted for two-thirds of total oil demand growth in the four years to 2011.
Crude oil supply in December fell to its lowest level in a year as two key members of the Organization of the Petroleum Exporting Countries, Iraq and Saudi Arabia, reduced their oil production, the agency said. And in Saudi Arabia, production fell because of a drop in demand due to a decline in the use of air conditioning in the country and lower demand from refineries undergoing seasonal maintenance.
These two shifts mean, "all of a sudden, the market looks tighter than we thought,” said the IEA.
The agency also lifted its estimate of demand growth in 2012 from 850,000 barrels a day to 975,000 barrels a day. The change was based on higher consumption in China, the United States and Brazil.
The IEA also noted that it does not expect the demand growth to be met by additional supply from non-OPEC producers. That led to the conclusion that OPEC would need to produce more to meet the rise in demand.
The oil market is suddenly looking much tighter than expected, as an unexpected surge in Chinese oil demand late last year coincided with a big cut in output Saudi Arabia, the IEA said Friday.
However, the agency cautioned that the outlook for the oil market in 2013 was still clouded by uncertainty over China’s economy, meaning it is too soon to say these changes would push oil prices higher.
"The prospects for the Chinese economy, ultimately the main driver of the country’s demand (for oil), are as clear as the Beijing sky,” the IEA said, referring to the smog that blanketed the Chinese capital this week.
The uncertain outlook for Chinese demand comes at a time when oil prices, which stayed consistently high in 2012, are struggling to find direction. Oil prices on Friday showed little reaction to the report, with Brent down 31 cents to $110.79 a barrel. US benchmark light sweet crude was down 16 cents at $95.33 a barrel.
The agency cautioned, however, that heightened debt levels and economic uncertainties in China could lead to sharp swings in demand in both directions throughout the year.
In addition, stronger-than-expected demand in China in November and December could have been inflated by refiners that were boosting their activities ahead of the new year, when tax changes came into effect, the report said. The inventories built up in the fourth quarter could now be drawn down, reducing apparent demand in the first quarter, it said.
Oil prices dropped Friday as traders banked profits from the previous day’s gains, while losses were limited by unrest in Algeria and better-than-expected Chinese growth data.
Brent North Sea crude for delivery in March fell 25 cents to $110.85 a barrel approaching midday in London. New York’s main contract, light sweet crude for February slipped 11 cents to $95.38 a barrel.
The IEA warned of renewed turmoil in North Africa’s energy sector. Libya’s production fell 50,000 barrels a day to 1.4 million barrels a day in December. — SG/Agencies