In its latest Oil Market Report, released today, the International Energy Agency revised its assessment of global oil demand up to 82.2 million barrels per day. Demand has been running stronger for the last few years than the agency had realized, so this current forecast reflects that baseline adjustment.

Demand growth is forecast at 2.5 mb/d for 2004 and 1.8 mb/d for 2005, about unchanged from last month. Revisions to historical demand lift the non-OECD baseline by 650 kb/d for 2002, including 300 kb/d in the Middle East. Due almost entirely to the higher non-OECD baseline, the 2004 demand estimate has been raised by 750 kb/d.

World oil supply rose by 550 kb/d in July, to 83.5 mb/d. OPEC crude gained 450 kb/d, mostly from Iraq. Non-OECD revisions boost baseline world supply by 200-300 kb/d over the 1994-2002 period, mainly in OPEC NGL [Natural Gas Liquids]. The net effect of baseline revisions is that the Call on OPEC plus stock change in 2004 is adjusted up by 410 kb/d. Non OPEC supply growth remains at 1.2 mb/d for 2004 and 2005.

So demand is growing faster than supply, continuing to narrow the gap. In October 2003, there was a 2.6 million barrel per day buffer between supply and demand. By July 2004, that shrank to 1.3 mb/d. Any significant disruption will tip us into a supply deficit. And, as the industry knows, demand will be at its annual peak in the fourth quarter. The call on OPEC to deliver more increases. Can it? Well, the answer seems to depend on which day and whom you ask. Way too fuzzy for comfort.