IEA sees easier oil market conditions in 2009

PARIS (AFP) - Tension on oil markets is set to ease early next year amid a US slowdown, the IEA forecast on Thursday, noting strong output by OPEC this year.

The International Energy Agency said that despite uncertainty on the length of the US downturn, demand in advanced countries seemed to be on a weaker trend although it forecast a global increase in demand of 1.0 percent next year.

"Superficially the risks to demand appear to be on the downside," the IEA said.

But the agency cautioned that demand for oil would remain robust in Asia, the Middle East and Latin America, fuelled by vibrant economic momentum and continued low fuel prices.

On the supply side of the equation, the IEA found that production by the Organization of Petroleum Exporting Countries (OPEC) in the last nine months is "well ahead" of the same period last year.

Supplies by non-OPEC producers are seen remaining strong in late 2008 and rising next year.

"There is potential for the current tightness (on oil product markets) to start to ease slightly in third quarter 2008, but that may be overly optimistic," the IEA said.

But it noted that supply and demand tensions were unlikely to ease until weather risks from the 2008-2009 winter had diminished.

"In other words, both crude and middle distillate markets may see some respite in the second half of 2008, but more likely by early next year."

Global demand for oil is expected to come to 87.7 million barrels a day next year, an increase of 1.0 percent from the level of 86.9 million barrels a day forecast for 2008 and roughly the same percentage rise from 2007 to what is foreseen this year. This rate of increase is slightly less than the increase during the oil price boom in recent years.

Demand this year was seen rising by a slight 80,000 barrels a day.

In the oil-thirsty advanced economies, demand is projected to average 48 million barrels a day in 2009, a decline of 1.2 percent from 2008.

The contraction in demand is pronounced in the United States, where according to the IEA demand should decline by 2.8 percent this year and 1.9 percent in 2009, partially in response to high fuel prices.

A different picture emerges outside the industrialised countries grouped in the Organisation for Economic Cooperation and Development. Demand in these developing economies is seen growing at about 3.8 percent in 2008 and 2009.

China for example should see demand increase 5.6 percent in 2008 compared with the 2007 and at a roughly similar pace in 2009.

The market for crude oil is also expected to remain strong in the Middle East and Latin America.

The report found that despite recent moves in Asia and elsewhere to curb fuel subsidies, "retail prices in many countries continue to be much lower than international levels."

The report found that while demand would strengthen in 2009, driven largely by economically booming non-OECD nations, supply -- especially by OPEC -- has been strong this year. That suggested that once the 2008-2009 winter is over, market tensions could diminish.

The IEA pointed to gains in global oil supply in June, largely from OPEC and in particular an increase to just under 9.5 million barrels a day in Saudi Arabian output and rebound in Iranian production to 3.8 million barrels a day.

OPEC supply in June, excluding Ecuador, was 1.8 million barrels a day higher than in June 2007.

But Nigeria suffered interruptions due to political unrest, which limited output to 1.9 million barrels a day.

The IEA, which seeks to coordinate energy policy among industrialised nations, said that over the next five years growth in demand for crude oil would be sustained.

While producing and consuming countries agree that expansions in oil industry infrastructure are needed, "producers are ... wary of signing any 'blank cheque' as regards future capacity expansion until the likely extent and duration of any global economic slowdown can be gauged ...

"Notwithstanding a potential easing in 2009, this could keep underlying levels of spare capacity tight for some time to come."