IEA raises oil demand forecast for 2007

PARIS, Feb 13, 2007 (AFP) – The International Energy Agency raised its 2007 world oil demand estimates on Tuesday, saying that consumption has dropped in industrialised countries for the first time for two decades but was rising strongly in emerging economies such as China. Demand in countries outside the OECD industrialised nations would be 3.2 percent this year, the IEA said in its monthly oil market report.

“Global oil product demand is raised by 111,000 barrels per day (bpd) in 2006 to 84.5 million bpd and by 273,000 bpd in 2007 to 86.0 million bpd following revisions to China,” said the influential energy watchdog.

The report said that for the first time since 1985, oil demand in industrialised countries of the Organisation for Economic Cooperation and Development had show a significant drop.

This was probably a reaction to high prices, but the drop does not imply a change in the longer-term trend, it said.

The IEA, which represents the interests of consumer countries, said however that “in non-OECD (demand) has been robust”.

The report from the Paris-based agency said: “Non-OECD oil product consumption is forecast to grow by 3.6 percent and 3.2 percent in 2006 and 2007, respectively.”

That was in large part due to “Chinese apparent demand, which is now seen to reach 7.1 million barrels per day in 2006 and 7.6 million barrels per day in 2007.”

The agency reduced its estimate of oil product demand in OECD countries by 97,000 bpd in 2006, as a result of large revisions, notably to US data, and continuing mild temperatures throughout December that curbed heating and residual oil demand.

“World oil supply grew by 175,000 bpd in January to 85.5 million bpd, with higher output in the FSU (former Soviet Union) and other non-OECD producers.”

But in January crude supply from OPEC nations, whose members produce about 40 percent of the world’s oil, fell by 180,000 bpd from December to 30.2 million bpd.

Demand for OPEC oil “is revised up to 30.6 million bpd for 2007 versus 30.3 million bpd in 2006 and remains above existing OPEC production,” said the IEA.

An oil analyst at the IEA, Lawrence Eagles, said after publication of the report: “The shift towards alternative energies will take place only in 2010 and beyond.

“In the meantime it is likely the world will have a rebound in growth demand driven by non-OECD countries,” he told AFP.

The monthly report also noted that high oil prices have caused a decline in demand for domestic heating oil and fuel oil.

The price per barrel of crude oil hovered around the 58 dollar mark on Tuesday, but in mid-2006 had reached record highs of above 78 dollars.

“China has been aggressively switching to non-oil power generation capacity, while the US and Europe have continued the shift towards natural gas, and to some extent coal,” said the report.

It said that demand for petrol (gasoline) had also declined across the OECD countries as a whole in the past two years, with transportation fuel demand growth falling to 1.3 percent from 1.8 percent between 1996 and 2004.

“In Japan, there has been a clear switch towards smaller, more efficient vehicles and while it may be some time before the average US commuter drives around in a ‘super-mini,’ a shift away from some of the light truck-based SUVs (sports utility vehicles) has been seen.”

But the IEA said that, if oil prices do not keep on rising, many car users will quickly acclimatise to the new levels, possibly rolling back some of the marginal economy measures seen recently.

This, however, can be offset if government policies maintain the recent trend towards more fuel-efficient cars, said the IEA.

The report also noted that many analysts were now wondering whether China will cease to be a gasoline exporter in the medium-term.

It said China’s net exports of gasoline shrank by almost 39 percent in 2006 to 80,000 bpd, the largest fall in percentage terms since a 2003 peak.

It noted that imports were currently negligible, representing less than 2.0 percent of exports.

As such, the country is no longer Asia’s largest gasoline exporter, having already been overtaken by Taiwan, and could soon also be surpassed by India.

Most observers attribute this fall to China’s voracious appetite for gasoline, it said.

Vehicle sales rose by 25 percent to a record of 7.2 million units in 2006, and were expected to increase at a similar rate this year. But refining decisions have also played an important role, as Chinese refiners maximize or minimize the production of certain products depending on demand, prices and government pressures, said the IEA.