Thursday, Jun 16, 2011

(Wraps in IEA commentary from St. Petersburg and summarizes the highlights of overall IEA news today.)

By James Herron and Geoffrey T. Smith

Of DOW JONES NEWSWIRES

LONDON/ST. PETERSBURG (Dow Jones)--Signalling a much tighter oil market in both the short- and medium-term, the head of the International Energy Agency warned Thursday that high oil prices threaten a "hard landing" similar to the economic crash of 2008.

The current situation "is starting to resemble 2008, and we know that 2008 was a very hard landing for the world economy," IEA Executive Director Nobuo Tanaka said Thursday at the St. Petersburg Economic Forum. "We'd prefer a soft landing," he added

Tanaka's statements came as the Paris-based IEA, which represents major energy consuming nations, projected a tough ride for energy consumers in both the short- and medium-term. In a pair of reports released Thursday, the IEA's first since last week's OPEC meeting ended in turmoil, the agency painted a tricky oil market characterized by surging demand and significant supply constraints.

In the short term, the IEA warned there is a danger of "overheating in prices" resulting in economic damage this year if OPEC doesn't pump extra oil.

The promise from OPEC kingpin Saudi Arabia to pump up to an extra 1 million barrels a day this month and next would bring "welcome relief," the IEA said. At the same time, the agency cautioned that some of the additional Saudi crude might not substitute for higher-quality Libyan crude, which has been off-line amid the fighting in that country.

There is a "clear need" for more OPEC oil demand growth in China and India continues to outstrip expectations, while production outside the oil exporters' group is falling short of forecasts, the IEA said.

Equally important, the IEA raised the five-year oil price forecast in its medium-term report by a whopping $19 a barrel, citing oil demand that will rise higher than previously expected in a market that remains supply-constrained until at least 2016.

The IEA said the current cushion of spare oil production capacity will remain "uncomfortably thin" for several years, in large part because Libyan oil production may not return to pre-war levels until 2014.

The two reports published Thursday reflect a more bullish take on the oil market than previous recent forecasts from the IEA, whose views have considerable sway in the oil market.

Oil prices rose last week after the OPEC meeting ended without agreement, but they have traded erratically in recent days amid concerns about the economic recovery.

At 1121 GMT, the front-month August Brent contract on London's ICE futures exchange was up 72 cents, or 0.6%, at $113.73 a barrel. The front-month July contract on the New York Mercantile Exchange was trading up 21 cents or 0.2%, at $95.02 per barrel.

Tanaka's remarks were in stark contrast to comments from OPEC Secretary General, Abdalla Salem El-Badri, Wednesday that emphasized that the world now has more spare capacity than in 2008.

Last week's OPEC meeting failed to reach a consensus and ended in acrimony, leaving output unchanged despite forecasts from both the IEA and OPEC that, in the third quarter this year, the world will need an extra 1.5 million barrels a day from the exporters group, compared with most recent production figures.

One bright spot for consumers was a "major adjustment" to the IEA's oil supply outlook due to the advent of new production techniques to tap oil trapped in shale rock in the U.S. An extra 1 million barrels a day of light oil could be produced in the U.S. with this method by 2016, the IEA said.

In the longer term, fundamentals of steadily growing demand, just about matched by growing supply, suggest that Brent crude will average $103 a barrel between 2011 and 2015, compared with a forecast of just $84 a barrel made last year, the IEA said.

Website: http://www.iea.org

-By James Herron and Geoffrey T Smith, Dow Jones Newswires; +44 (0)20 7842 9317; james.herron@dowjones.com

(END) Dow Jones Newswires

16-06-11 1349GMT