IEA sees oil supply crunch looming

LONDON (Reuters) - World oil demand will rise faster than expected to 2012 while production lags, leading to a supply crunch, the International Energy Agency said on Monday.

In its Medium-Term Oil Market Report, the adviser to 26 industrialized countries said demand will rise by an average 2.2 percent a year between 2007 and 2012, up from a previous medium-term forecast of 2 percent.

The outlook, which updates an IEA forecast last issued in February, coincides with a jump in oil prices to more than $75 a barrel, closing in on a record high near $79, on concerns of a tightening market.

"Despite four years of high oil prices, this report sees increasing market tightness beyond 2010," the IEA said.

"It is possible that the supply crunch could be deferred -- but not by much."

The IEA's previous Medium-Term report called for world demand growth of 2 percent a year between 2006 and 2011.

It now expects global demand to reach 95.8 million barrels per day (bpd) from 86.1 million bpd in 2007. The forecast assumes average global GDP growth of 4.5 percent annually.

"The results of our analysis are quite strong," said Lawrence Eagles, head of the IEA's Oil Industry and Markets Division. "Something needs to happen."

"Either we need to have more supplies coming on stream or we need to have lower demand growth."

The Paris-based IEA also said additional global refining capacity over the next five years will lag earlier expectations as rising costs and a shortage of engineers delay construction.

It said world production of biofuels would reach 1.75 million bpd by 2012, more than double 2006 levels, but the fuel will remain marginal as economics hobble further growth.

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