It is too soon to call an end to the oil price crisis that has engulfed global energy markets in the past year, the West’s oil watchdog warned on Tuesday. World oil prices, which have fallen by more than $30 a barrel since the July peak, touched a three-month low with the International Energy Agency reporting that global supplies would be more than adequate to meet a slightly-higher-than-expected increase in demand next year. However, the IEA was cautious about whether the market had now reached a turning point. “We would hesitate before automatically extrapolating the recent price trend,” said the organization.
Within hours of the release of the IEA’s sober assessment, the U.S. Energy Information Administration said U.S. demand had fallen by 8,00,000 barrels a day in the first half of the year, the largest decline for 26 years. It blamed slower economic growth and higher petrol prices. The EIA also cut its forecast for U.S. oil demand for the third quarter, but revised it upwards for the final three months of the year.
The Paris-based IEA earlier said its “all other things being equal” forecast suggested easing fundamentals and potentially higher stocks of crude in the months to come. But it warned that such a scenario was threatened by a number of factors; disruption to supplies from Nigeria and Azerbaijan, storms hitting the Gulf of Mexico and potential delays to projects in Brazil, Canada and Russia.
The threat posed by geo-political unrest to world oil supplies was underlined on Tuesday, when BP closed the Baku-Supsa gas pipeline which leads to the Georgian port of Supsa because of the conflict between Georgia and Russia. Last week, the Baku-Tbilisi-Ceyhan (BTC) oil pipeline, which runs close to Georgia’s capital Tbilisi towards the Turkish port of Ceyhan, was shut down because of an explosion unrelated to the conflict. Kurdish separatists claimed responsibility.
The IEA said political problems could hold up Iraqi and Russian supply growth and that while the OECD demand could prove weaker than expected, inventories remained “worryingly flat” and demand from non-OECD countries, not least from China and the Middle East, could prove higher than expected. “Add in ever-changing sentiment over Iran, and it looks too early to cite definitively a sea change in the market.” The IEA said it expected global demand for oil products in 2008 to be virtually unchanged at 86.9 million barrels a day and slightly higher at 87.8 million barrels for 2009, on demand from outside the OECD area.
OPEC’s effective spare capacity was about 1.5 million barrels a day, the IEA said, but should rise later this year and into next. At one point on Tuesday, U.S. crude price hit its lowest level since May, at $112.48 a barrel. It then recovered to $116 but subsequently fell back to $113. Back in July, it reached a peak of more than $147.
“Demand for OPEC oil is going to be lower than its production capacity, so the market is looking forward to seeing an inventory build,” said Olivier Jakob at the trading advisory company, Petromatrix. The latest figures from the U.S. showed a surprise fall in the trade deficit with a $6 billion drop in non-oil imports offsetting higher energy costs.
U.S. Commerce Secretary Carlos Gutierrez said the lower-than-expected deficit could prompt the department to raise the second-quarter economic growth from its initial estimate of 1.9 per cent. “It’s a very strong month for exports,” Mr. Gutierrez said. “The growth is coming from Brazil, it’s coming from Russia, it’s coming from India, it’s coming from the Middle East ... It’s very broad-based.”
The dollar rose against the euro on news that the trade gap narrowed in June, but was then hit by profit taking. Kurt Karl, chief U.S. economist at Swiss Re in New York, said the better-than-expected figures “will support growth going into the third quarter.” However, he noted that the narrowing trade deficit was more evidence that the U.S. economy could be in a recession, because it showed consumers were buying less.
The falling oil price has brought some relief to U.S. motorists with the price of a gallon of fuel falling below $4 (88 cents per litre) for the first time since late May. The regular Lundberg survey of filling stations found that the average cost of unleaded petrol had fallen by 15 cents over two weeks to $3.85. High prices have been causing soul-searching in car-dependent parts of America.
In some areas, employers have allowed staff to compress their workload into intensive four-day weeks to reduce commuting costs. Several towns have switched police patrols on to bicycles, charities have had to cut back on meals on wheels and rail services have reported a surge in passenger numbers.