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Global oil demand recovery on track
The U.S. expected to lead recovery, despite Julys demand dip
LONDON, Aug. 8 The Wests energy watchdog said on Friday a slow recovery in global oil demand was on track, despite the recent slump in equities markets.
THE INTERNATIONAL ENERGY Agency (IEA) said it expected demand to jump sharply in the fourth quarter this year and continue through 2003, even though its performance so far this year has been sluggish.
However slow the recovery in oil demand may appear, it is still on track, the IEA said in its monthly Oil Market Report.
The impact of the equity market slide on oil demand was unclear and may be marginal, the agency said, although it did increase the downside risk to demand forecasts.
The Paris-based agency, an arm of the Organisation for Economic Co-operation and Development (OECD), has consistently cut its 2002 demand growth estimate over the past six months as economic recovery has failed to keep pace with expectations.
This time it trimmed the annual growth figure by 50,000 barrels per day (bpd) to 200,000 bpd, the weakest growth for 15 years.
Independent consultant Geoff Pyne said the IEA had under-estimated the crimping effect of high oil prices on demand growth.
This is effectively the second year of near zero growth in world oil demand. It is obvious prices are too high, he said.
The Organisation of the Petroleum Exporting Countries has successfully achieved its target price of around $25 per barrel since 2000 through drastic curbs in oil output.
The IEA said demand in the first half of this year was below expectations, but maintained its forecast of a recovery in the second half.
The global growth rate accelerates to 1.1 million barrels per day in 2003 on average, according to this months report, in line with last months estimate.
That is a pretty unexciting number in the context of an economic recovery, said Pyne, noting that annual demand growth was nearer two million barrels a day in the late 1990s.
The IEA sees the recovery taking hold in the fourth quarter, when demand is expected to jump by 1.3 million bpd versus the same period of 2001.
Demand slumped after the September 11 attacks on the United States, which dented an already slowing economy and caused a collapse in air travel.
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The IEA said it still expects the United States, the worlds largest consumer, to lead a global demand recovery, despite a dip in July.
The dip in U.S. demand in July, which had been expected in our previous forecast, reflects in part the relative strength of U.S. deliveries that month a year earlier, and should lead to resumed growth in August, the report said.
The United States burns one in every four oil barrels consumed worldwide.
U.S. demand for gasoline and diesel has already moved into positive territory, while jet fuel is unlikely to recover to pre-September 11 levels for the foreseeable future because of airline efficiency gains, the IEA said.
Despite the weak demand growth, oil inventories in the industrialised world grew at below their five-year average in the second quarter of the year, the IEA said.
A series of curbs on OPEC output has created a total of 6.5 million barrels per day of spare production capacity in the cartel of mostly Middle Eastern countries, the IEA said. The figure includes almost a million bpd of idle capacity in sanctions-bound Iraq, which is in a pricing dispute with the United Nations.
OPEC ministers are due to meet on September 19 to decide on output for the fourth quarter, and cartel insiders expect it to relax current tough curbs, although there is no sign of OPEC reducing its price target.
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