Thursday, Jun 16, 2011


 
   By James Herron 
   Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--The International Energy Agency Thursday said in its monthly oil market report that there is a "clear need" for extra crude oil from OPEC as it increased its demand forecast for 2011 and cut its outlook for oil production from countries not within the crude exporters group.

If Organization of Petroleum Exporting Countries do not pump extra oil, the market will tighten substantially resulting in "overheating prices" and economic damage, said the IEA. 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" in these circumstances, it added.

The report from the IEA, which represents major energy-consuming countries, gives clear support to the position of Saudi Arabia and other Gulf countries that split away from OPEC at its Vienna meeting last week, after the rest of the group blocked a production increase.

The Gulf countries argued that OPEC should raise output to meet substantially higher demand in the second half of the year. The opposing faction, led by Iran and Venezuela, warned that economic growth was weak and oil demand could falter leaving the market over supplied.

The meeting failed to reach a consensus and ended in acrimony, leaving output unchanged.

The IEA acknowledged that slowing growth could reduce oil demand in developed economies, but said higher consumption in emerging economies will more than offset this and raised its 2011 demand forecast by 0.1 million barrels a day.

This is a departure from previous months, when the IEA has warned that weakness in developed economies, particularly the U.S., could trim oil demand growth.

India's oil consumption has been higher than previously thought and it looks likely that gasoil use in China will rise as people turn to portable power generators amid widespread electricity shortages, the IEA said. A significant demand bump also looms as refiners kick into high gear in the coming months after maintenance shutdowns, it said.

In the third quarter, the world will need OPEC to produce 30.7 million barrels a day, an increase of 1.5 million barrels a day from its May output, the IEA said. It increased its estimate of the need for OPEC crude in the whole of 2011 by 0.4 million barrels a day from last month.

If this production does not materialize, oil will have to be drawn from inventories that have been declining steadily this year, although they received a lift in April as Japan restocked after the earthquake, it said.

Although it welcomed Saudi promises of extra crude, the IEA warned that the oil market looks most in need of the lightest, sweetest crude of the type the Gulf kingdom does not produce. A shortage of that kind of oil will remain as long as the Libyan civil war disrupts oil exports from the country, it said.

Libyan output may not return to pre-war levels of 1.6 million barrels a day until 2014, the IEA warned.

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

(END) Dow Jones Newswires

16-06-11 0822GMT