Consumers in the United States and Asia crave ever-greater quantities of oil, but global supplies have fallen, resulting in higher prices just as winter begins in some of the biggest oil-importing nations, the International Energy Agency reported today.
Global demand for oil grew 1.3 percent in the third quarter from a year earlier, while demand in the United States increased in November by 6 percent. Seasonal purchases of heating oil will eat even further into inventories as temperatures drop, the IEA predicted.
At the same time, world production fell to 73.9 million barrels a day in November, down 250,000 barrels from October. The biggest reason for the decline was political--Iraq's decision on Nov. 24 to halt oil exports pending a U.N. decision on whether to renew a oil-for-food export program.
"This is a thirsty oil market," the IEA monthly survey said. The Paris-based IEA is part of the Organization for Economic Cooperation and Development, a group of the world's wealthiest nations.
Prospects for more oil production by the Organization of Petroleum Exporting Countries in the short term are unclear. OPEC members have been sticking closely to output cuts they agreed to in March. Their compliance rate was 89 percent in November, up from a revised 83 percent in October.
Iraq, the third-largest OPEC producer, has suspended its exports at least until Saturday, reducing world supplies by a whopping 2.2 billion barrels per day, the IEA noted in its market survey. Neighboring Iran trimmed its daily output in November by 310,000 barrels to comply more fully with the OPEC cutback decision.
Together these reductions more than offset increased crude output in November by Norway, Sudan and Vietnam.
Peter Gignoux, senior petroleum analyst at Salomon Smith Barney Inc. in London, called the IEA report "a clarion call for higher oil prices."
Contracts for North Sea Brent crude soared on Nov. 22 to a year-to-date peak of $25.90 per barrel, more than 2 1/2 times its low for the year of $9.90, reached on Feb. 17. In London, North Sea Brent crude for January delivery was 29 cents higher today, at $25.69 a barrel, on the International Petroleum Exchange.
On the New York Mercantile Exchange, light, sweet crude for January delivery rose 32 cents per barrel today, to $26.54. Higher prices for crude translate into more expensive refined products. U.S. gasoline prices surged 1.76 cents per gallon during the past two weeks, to a weighted national average of about $1.35 per gallon, according to Trilby Lundberg, who directs the Lundberg Survey of 10,000 gasoline stations across the United States.
Demand is strongest in the United States and Asia, thanks to the U.S. economic boom and the recovery some Asian countries are making from the 1997 financial crisis.
Inventories in the world's wealthiest nations fell by a moderate 440,000 barrels per day in the third quarter, the agency said. The reduction should accelerate as purchases of heating oil pick up this winter, it added.
Uncertainty about Iraq complicates forecasts about prices and supply, said Leo Drollas of the London-based Center for Global Energy Studies. If Iraq continues to remain out of the market, prices could rise. On the other hand, other OPEC members might be tempted to make up the shortfall.
Continued restraint by OPEC members and a lack of Iraqi exports, together with a cold winter, could add up to bad news for consumers. If all those things happen, Drollas said, "you're looking at spikes in oil to $30-plus per barrel."