The global oil market is likely to witness a bridging of the demand supply gap over next five years, the International Energy Agency noted in a report released today.
“The IEA expects the global oil market to become somewhat less tight over the medium term than it has been through most of the last decade, as a combination of demand and supply factors will cause Opec spare capacity to return to more comfortable levels,” said IEA’s annual Medium-Term Oil Market Report . It said ample supply from North America and Iraq coupled with declining global demand could lead to an easing of oil prices over the next five years. Brent, the benchmark crude oil for most international trade, has remained range bound over last several months. The September 2012 average was $112.86 a barrel compared to $113.13 in same period last year.
The report's projection of a return to higher Opec spare production capacity will be welcome news amid rising supply and demand risks, said IEA Executive Director Maria van der Hoeven. IEA cut its global oil demand growth projection for 2011-2016 by 500,000 barrels per day (bpd) compared to its previous report, easing the pressure on Opec to produce more oil. It also cut its 2013 global oil demand projection by 100,000 bpd to 90.48 million bpd, citing lower consumption in Europe, the Americas and China.
Among Opec producers, Iraq stands out as its production capacity is expected to enter a new growth phase, which may continue even beyond the forecast period. These new supply sources are expected to more than offset decline rates and outages elsewhere as well as the continued impact of international sanctions of Iran.
Today's weak economic environment has reduced expectations of oil demand growth for the medium term, yet the reallocation of demand by region and key product, which has been underway for the last 15 to 20 years, is expected to continue.
The report anticipates a profound shift in the regional distribution of oil demand and supply growth will redefine the refining industry and transform global oil trade over the next five years, it said.
