Energy agency sees slowdown in oil demand
PARIS: With the effects of surging oil prices reverberating through the global economy - from airlines curtailing flights to Asian governments cutting fuel subsidies - the International Energy Agency on Tuesday lowered its forecast for global oil demand this year, but just a bit.
Changes are happening in developed economies that will have an effect on demand, the agency, based in Paris, said in its monthly report, but they will "take time to filter through."
The IEA forecast in its monthly Oil Market Report that global oil consumption would average 86.8 million barrels a day in 2008, or 70,000 barrels a day below the estimate that it made in its last report. Still, that would make overall demand 0.9 percent higher than in 2007.
From Madrid to Hong Kong, social tension over soaring prices, which are crimping consumer spending power, are taking root.
Spanish drivers and shoppers stockpiled fuel and food Tuesday, fearing shortages after truck drivers blocked deliveries across the country for a second day, protesting the high price of fuel.
In the United States, a Democratic proposal to impose heavier taxes on big oil companies stalled in the Senate on Tuesday as Republicans and Democrats offered different ideas on how to deal with soaring energy costs.
Under pressure from President George W. Bush, among others, Saudi Arabia is convening a meeting of oil producers and consumers to discuss prices and supplies. The secretary general of the Organization of Petroleum Exporting Countries said the meeting would be held on June 22.
Speaking in London, the OPEC official, Abdullah al-Badri, also called for measures to curb market speculation, Reuters reported. "The situation is unbearable as far as we are concerned," he said. "I want to say, there is no shortage now and in the future."
The price of crude oil was falling Tuesday. Light sweet crude for July delivery was down $2.50, or 1.9 percent, at $131.85 a barrel on the New York Mercantile Exchange. Earlier it touched a session high of $137.98.
Traders attributed the volatility in part to the IEA report, which said China would continue to require more oil, and to a price estimate of $250 a barrel from Alexei Miller, chief executive of Gazprom, the Russian energy giant.
Miller said he expected crude to reach that price "in the foreseeable future," Reuters reported Tuesday from Deauville, France. That would mean sharply higher gas prices for Europe, he added.
Last week, Morgan Stanley joined Goldman Sachs in forecasting that oil might touch $150 a barrel this summer.
"Is the surge a question of fundamentals or speculation," said Manouchehr Takin, a senior analyst at the Center for Global Energy Studies in London. "It seems to be a bit of both."
Many of the positions that have pushed prices higher recently were probably taken by pension funds looking for better returns after a bruising year in the credit markets and encouraged to enter the market because of the recent weakness of the dollar.
"The market is tight for seasonal reasons and we are not seeing growth in non-OPEC supply," Takin said. "But there are reasons to believe that demand might fall in six months to a year. These factors will solve themselves."
Among these are the expectation that prices will fall in the coming year on slowing demand from the West as the economies cool, the effect of the lower subsidies in Asia, which are unlikely to be reversed, and the change in consumer habits as prices stay high.
The IEA report noted a reduction in flights by airlines in the face of soaring fuel costs and the rush by consumers in the West to buy more efficient vehicles, as carmakers slow production of gas-guzzling autos like sport utility vehicles. Public transport use is also increasing and overall vehicle-miles traveled are falling, it said.
The reduction of price subsidies in Asia "should slightly tame oil demand growth in that region," it said. The IEA is an energy policy adviser to the Organization for Economic Co-operation and Development, a group of 30 advanced economies, mostly in the West.
Eduardo Lopez, a senior oil analyst at the IEA in Paris, said during an interview that emerging markets, rather than the United States, were now dictating the direction of demand. "As long as there's growth in key areas outside the OECD, it's very unlikely that demand growth there will cease," he said.
Few analysts said that they expected the OPEC meeting would push down prices in the current environment.
"We're not in an energy crisis, we're not short of oil, we've got a refinery shortfall," said John Hall, managing director of the consultancy John Hall Associates in Horsham, England.
The market appears to be well supplied with crude oil, he said, citing as an example reports that Iran has been unable to sell some of its heavy crude. He noted that the oil market reacted little to reports Tuesday that Saudi Arabia had increased oil output by 500,000 barrels a day this quarter, 200,000 barrels a day more than previously thought.
The IEA, meanwhile, warned against any fiscal moves by governments that would encourage the use of gas, like cutting taxes.
"Higher prices are needed to choke off demand to balance the market," it said, adding that it would be the "worst response" to subsidize prices more, or in the case of OECD members, to cut taxes on fuel.
The IEA report also raised the possibility of a release of strategic stocks by OECD countries. "The market can take comfort that the IEA is watching developments very closely and is prepared to act quickly if necessary," it said.
The rising price of gasoline has also brought protests in Europe by groups like truckers and fishermen, who have been hit hard by the climb in prices. Some European politicians, like President Nicolas Sarkozy of France, have suggested lowering taxes on gas.