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IEA: $100 Oil Hurts Global Economy, Supplies to Shrink

Tuesday, 12 Apr 2011 11:37 AM

The International Energy Agency maintained its outlook for global oil demand in 2011, while warning that prices above $100 a barrel are starting to hurt the global economy.

Worldwide oil consumption will increase by 1.4 million barrels a day, or 1.6 percent, this year to average 89.4 million a day, the Paris-based adviser said today in its monthly Oil Market Report. Still, preliminary data “already show signs of oil demand slowdown” and global supplies are starting to look “thin” as the Libyan conflict strains spare production capacity held by the Organization of Petroleum Exporting Countries, the IEA said.

“There are real risks that a sustained $100-plus price environment will prove incompatible with the currently expected pace of economic recovery,” the agency said. “The surest remedy for high prices may ultimately prove to be high prices themselves.”

Crude futures climbed above $110 a barrel in New York for the first time in 30 months on April 7 as forces loyal to Libyan leader Moammar Gadhafi launched strikes on the country’s oilfields. U.S. oil traded around $106 today. Yesterday the International Monetary Fund lowered its 2011 forecast for U.S. growth, citing the strain from fuel costs, and Goldman Sachs Group Inc. said there are “nascent signs of oil demand destruction.”

Denting Demand Growth

The U.S., the world’s largest economy and biggest consumer of crude, will expand 2.8 percent this year, down from the 3 percent projected in January, the IMF said. The IEA reported that “preliminary January and February data suggest that persistently high oil prices may have already started to dent demand growth.”

Societe Generale SA said yesterday that growth in U.S. demand “faded to zero” in March from 600,000 barrels a day in January.

OPEC, responsible for about 40 percent of global oil supplies, has about an “effective” spare capacity of about 3.91 million barrels a day, the IEA estimated. This level “begins to resemble the thin flexibility margin” that helped drive the rally in prices during the last decade, it said.

The 11 members of the producer group bound by quotas pumped 26.51 million barrels a day last month, the lowest since May 2010, following supply losses arising from armed conflict in Libya, the agency said. Iraq is exempt from the quota system.

All 12 members will need to provide a daily average of 29.8 million barrels a day this year to satisfy global requirements, or about 600,000 a day more than they pumped in March, according to the IEA.

The IEA said that producers could calm prices through additional sales of crude and by reducing their official selling prices.

Non-OPEC Production

The agency boosted its forecast for production from outside the organization this year, based on gains in output from Canada. Non-OPEC suppliers will provide 53.7 million barrels a day in 2011, or 100,000 a day more than the IEA projected last month.

While oil stockpiles held by companies in the world’s most developed economies are currently “comfortable,” inventories could drop by December to near their lowest in five years if present rates of demand are sustained, the agency said.

Supplies in the Organization for Economic Cooperation and Development dropped by 50.8 million barrels to 2.68 billion in February, equating to about 59.2 days worth of consumption.

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The International Energy Agency maintained its outlook for global oil demand in 2011, while warning that prices above $100 a barrel are starting to hurt the global economy. Worldwide oil consumption will increase by 1.4 million barrels a day, or 1.6 percent, this year to...
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2011-37-12
Tuesday, 12 Apr 2011 11:37 AM
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