Saudi oil drop tightens oil markets
World oil markets are tightening as Chinese fuel demand increases and the Organization of the Petroleum Exporting Countries’ (Opec) supplies fall, draining inventories, the West’s energy agency said on Friday, in a trend that could put extra upward pressure on prices.
The International Energy Agency (IEA), which advises the industrialised nations on energy policies, has in the past few months described the oil markets as very well supplied. It said it had now a more “sobering, ‘morning after’ view” although it was too early to become seriously concerned or declare a return to the bull market. It steeply raised 2013 global oil demand forecasts despite concerns about the health of the world economy. “All of a sudden, the market looks tighter than we thought,” the IEA said, adding that oil stocks in the developed economies of the Organisation for Economic Co-operation and Development (OECD) were falling.
“OECD inventories are getting tighter - a clean break from the protracted and often counter-seasonal builds that had been a hallmark of 2012.” However, the IEA said that both Chinese demand and Saudi supply were too complex for hasty interpretations. “The dip in Saudi supply, for one, seems less driven by price considerations than by the weather,” it said. “A dip in air conditioning demand - as well as reduced demand from refineries undergoing seasonal maintenance - likely goes a long way towards explaining reduced output. Nothing for the global market to worry about,” the IEA said.
Opec crude supply in December fell to its lowest level in a year at 30.65 million barrels per day (mbpd) on lower output from Saudi Arabia and Iraq. It said Saudi output fell 290,000 bpd in December to 9.36 mbpd. Iranian supply stood steady in December at 2.7 mbpd versus November although for the year production plunged by 0.65 mbpd to 3 mbpd. The IEA raised its call on Opec crude and stocks for 2013 by 100,000 bpd, to 30 mbpd, still below the current production.
It also said China’s recent economic indicators have signalled the potential for a rebound in oil consumption after a slowdown to spectacular growth in 2012.