The International Energy Agency said Tuesday it expects oil demand to grow more slowly next year in China and most other parts of the world, indicating that crude prices are likely to trade at subdued levels well into next year. In its first assessment of 2011 global oil trends, the Paris-based agency forecast world oil demand to grow by 1.3 million barrels a day, or 1.6%. That increase rate is below the 2.1% rise in global crude consumption expected this year, although it is in line with 1.7% growth seen on average annually from 2000 to 2007. Despite a higher rate of global economic growth projected next year, the IEA said the dual impact of improving energy efficiency in industrialized nations and a gradual phasing out of economic stimulus in emerging markets such as China—the fastest-growing oil consumer globally—would slow the pace of oil consumption.
It also said the Organization of Petroleum Exporting Countries would continue to have between 5.5 million and six million barrels a day of spare oil-production capacity far into 2011 to offset any unexpected supply disruptions. Most of that capacity is held by Saudi Arabia, the world's biggest oil exporter. "Whisper it quietly, but we might, just might, be in for some market stability for a while longer," the IEA said. The agency, an energy adviser to mostly industrialized nations such as the U.S., said it expects oil prices to average $79.40 a barrel in 2011. Front-month oil futures in New York at noon Tuesday traded $1.96 higher at $76.91 a barrel. The IEA's latest forecast highlights a more benign view of the global oil market compared with a year ago when many industry observers were warning that a sharp drop in oil exploration spending would hurt future supply and drive crude prices sharply higher by 2010-11. Capital expenditures did drop by almost 20% last year, but are expected to rebound by about 10% in 2010.
What has also changed is a more relaxed view on oil consumption. Consumers are still bent on maximizing energy efficiency in places such as the U.S., and oil traders have lingering doubts about the health of Europe's and America's economic recovery and the knock-on effect in emerging markets. The IEA said it expects total Chinese oil demand to rise by just 4.8% next year to 9.56 million barrels a day compared with robust growth of 9.1% this year. China is the world's second biggest oil consumer at a distant second to the U.S., which is forecast to burn 18.86 million barrels a day on average in 2011, down slightly from this year. There are some potential problems ahead. Non-OPEC oil supply is forecast to grow by just 400,000 barrels a day in 2011, half the growth rate expected this year and far below recent historical averages, due to aging oil fields.
The IEA also cautioned that regulatory and legal uncertainties in U.S. offshore oil drilling, stemming from the Gulf of Mexico oil spill, could cut U.S. oil output by as much as 300,000 barrels a day by 2015. The agency currently estimates that fallout from the spill will lower U.S. production by 30,000 barrels a day this year and in 2011. The IEA bases its oil-demand estimates on the International Monetary Fund's economic-growth outlook, which calls for economic activity globally to rise 4.3% in 2011 from 4.1% growth this year.
Author: Spencer Swartz
