In its monthly Oil Market Report, the IEA again revised upward its estimate for growth in global oil demand, while noting that oil supply dropped in January.
The estimate for global oil demand growth is revised slightly higher for 2004 to 2.68 mb/d and to 1.52 mb/d for 2005. Fourth quarter demand in 2004 was stronger than expected in North America, the FSU, China, and non OECD Asia, but weaker in OECD Asia. China and non OECD Asia 2005 growth estimates are revised slightly upwards.
World oil supply fell by 645 kb/d in January to 83.6 mb/d mainly on declines in OPEC supply. Non-OPEC supply from Canada, Norway and the US Gulf of Mexico remained curtailed and Russian output fell for a fourth month. Lower Russian expectations and prolonged OECD disruptions cut the 2005 non-OPEC supply forecast by 175 kb/d.
Repeating the patterns of last year, actual demand continues to exceed forecast expectations. This latest forecast in the OMR resulted in an immediate jump in oil prices by more than $1/barrel, as for the first time during this run-up in demand over the past few years the gap between supply and demand went negative. (Chart to right.)
“Demand is apparently growing faster than supply, which can’t be good,” said Aaron Kildow, a broker at Prudential Securities Inc. in New York.
“The market is much tighter than the numbers had suggested before,” said Paul Horsnell, head of energy research at Barclays Capital in London. “The IEA is becoming more optimistic about demand and more realistic about non-OPEC supply.” (Bloomberg)
That doesn’t mean that the world has tipped over the peak of production into global decline—there were a number of factors, as outlined in the OMR, that curtailed supply growth in January.
It does show, however, that the supply-demand margin is increasingly thin so that any set of disruptions can push it over onto the negative side, as shown in this report. It also highlights the increasing difficulty of most producers in increasing production to keep up with demand, and the increasing reliance on OPEC—especially Saudi Arabia.
The current forecast is yet another datapoint that argues for more urgency in adopting and implementing energy conservation, fuel efficiency, alternative and renewable fuels.
The latest ASPO forecast, revised in January 2005, puts peak global production in 2007.