Oil supplies will remain tight despite record prices and reduced demand, even though costly crude is crimping consumption, the International Energy Agency (IEA) said Tuesday. Agency head Nobuo Tanaka declared that the world is in the grip of an “oil shock.” Downsizing its estimate of how much oil will reach the market, the agency said supply and demand figures would be close through the next five years, despite lower overall estimated hunger for crude as the world adjusts to record prices and cuts its consumption. In its annual Medium Term Report, it said the world's estimated daily oil needs would rise from 86.87 million barrels this year to 94.14 million barrels in 2013 - less than it anticipated in its 2007 report because of skyrocketing prices. In percentage terms, the agency said there will be 1.40 percent less demand this year and 3.43 percent less in 2012, the last year for which the report gave percentage figures. Oil supplies will remain tight despite record prices and reduced demand from industrialized countries because China and other emerging economies will consume more crude to feed their booming economies, the IEA said. The market will continue to be tight through the next five years, despite lower overall estimated demand, as the world adjusts to record prices and cuts in its crude consumption, it added. “We are clearly in the third oil price shock,” declared Tanaka, comparing the effects of pricey petroleum now to periods of soaring prices in the 1970s and 1980s. But whereas there were ready remedies to those past oil shocks, he suggested there was less likelihood of a quick fix this time. “Those price peaks forced consumers into saving oil?” and oil companies to look for new wells, said Tanaka, but now “the biggest energy savings have been made (and) ... the easy oil outside (of) a few countries has been found.” The energy agency predicted producers would be able to meet world needs - but noted that supply will exceed projected demand only by a daily 2 million barrels, forecasting a relatively thin cushion between what is available and what is needed. Tanaka expressed surprise about the tight supplies despite a price surge that would normally lead to increased availability. Since the IEA's 2007 report “which forecast severe supply tightness emerging ... oil prices have doubled and we have seen the start of economic slowdown spreading throughout the world,” he said. “The shock was that ... while demand was revised down ... supplies have also been revised down sharply.” The IEA is the energy watchdog for the Organization for Economic Cooperation and Development, a grouping of the world's most industrialized countries. Its forecasts are considered to be the best gauge of where oil supplies and prices are headed. The Organization of Petroleum Exporting Countries maintains that the market is well supplied now. It blames crude's threefold price rise over the past three years on the weak US dollar and speculators seeking to protect themselves from the falling value of the greenback by investing in oil. But the US and other consumers insist that supply worries are driving prices, and that increasing consumption in China, India and other powerhouses of the developing world is keeping availability tight. Tanaka backed that view Tuesday. “Day-to-day market noise can be driven by speculators,” he told reporters. “High oil prices are driven by fundamentals.” In its report, the energy agency also suggested that emerging economies were much of the force driving oil prices, noting that “oil demand remains concentrated in developing economies, with 90 percent of the growth spread between Asia, South America and the Middle East.” And while China's and India's overdrive economies will account for almost half of the growth forecast for emerging countries, demand will likely contract somewhat in the industrialized world, it said. The report appeared to come down on the side of those arguing that more oil needs to reach markets for prices to fall, noting that “fundamentals are setting the level of oil prices.” Still, it warned against settling for a “simplistic explanation,” arguing that “a multitude of interactions ... are taking place and are combining to cause these high prices.” It took indirect issue with those in the US Congress pushing for curbs on speculative investments in oil commodities as a way to curb prices, saying: “Often it is a case of political expediency to find a scapegoat for higher prices rather than undertake serious analysis or perhaps confront difficult decisions.” Among the factors listed by the report as leading to price spikes were: q low spare capacity from OPEC q geopolitical concerns, including unrest in oil-producer Nigeria and tensions over the nuclear ambitions of Iran, OPEC's second-largest producer q possible excess stockpiling by refiners and tight refining capacity q expectations that prices will rise due to fears that supply might have peaked and recognition of powerful economic growth by developing countries q strong forward refining margins, which may have encouraged stock building by refiners looking to make profits. The report also predicted that underproduction from non-OPEC producers will continue over the next five years - a trend that may additionally act to lift prices.
