IEA: Recession Could Put Oil Market Back Into Surplus

- IEA: Recession Could Put Oil Market Back Into Surplus

Wednesday, August 10, 2011
Dow Jones Newswires
LONDON
by James Herron

The International Energy Agency said Wednesday that a double-dip recession could reduce energy demand enough to push global oil markets into surplus next year, although it made only small adjustments to its current forecasts despite the deepening economic gloom.

This assessment indicates that the recent plunge in international oil prices, down more than 12% at Tuesday's close compared with the start of August, could have some way further to fall if developed economies do slip back into recession.

However, given the tremendous economic uncertainty and the current finely balanced state of the oil market, the IEA warned against pre-emptive action from oil producers to defend high prices. "There is no justification at the present time for OPEC to think of substantially adjusting production downwards," said David Fyfe, head of the Oil Industry and Markets Division at the IEA.

OPEC members have so far made a "concerted effort" to keep the market well supplied, the IEA said in its monthly oil market report. Its most important member, Saudi Arabia, raised production in July to its highest level in 30 years, as it filled the gap left by lost Libyan exports, it said.

If global growth this year and next falls below 3%--a level previously said by the International Monetary Fund to be indicative of recession--oil demand could be significantly lower than current forecasts, the IEA said. Such an outcome could push the world's need for crude from the Organization of Petroleum Exporting Countries below the group's current production, it said, implying a market in surplus.

The IEA made clear this was only one possible scenario and has only slightly trimmed its current 2011 demand growth estimates despite growing signs of trouble in major consuming countries the U.S. and China. However, it also warned that these forecasts were based on the most recent IMF global growth estimates of over 4% for this year and next, which, "may ultimately prove too optimistic," in the current economic climate.

The IEA noted "serious concerns" about the U.S. outlook given weak second quarter GDP and high fuel prices. In recent days, the IEA, the U.S. Energy Information Administration and OPEC have all slashed their demand forecasts for the U.S. The IEA now expects U.S. oil demand to fall by 200,000 barrels a day, or 1%, this year.

China, the world's second major engine of oil demand, is also looking weaker. "For the first time since March 2009, China's monthly apparent demand contracted on an annual basis, falling by 1.5% in June," the IEA said. "The decline coincided with evidence that China's economy is also slowing down and that higher end-user prices are weighing upon demand."

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IEA Reports on State of Oil Markets since Emergency Stockpile Release

- IEA Reports on State of Oil Markets since Emergency Stockpile Release

Friday, July 15, 2011
Rigzone Staff
by Barbara Saunders

In an unusually strongly worded statement, the International Energy Agency (IEA) – the official energy watchdog for major consuming nations – said that its critics "can't have their cake and eat it too."

IEA made the statement in releasing its monthly oil market report on July 13, commenting on the status of oil markets since its call on June 23 for the release of 60 million barrels of oil and refined products from the emergency stockpiles of member nations, including the U.S. and Japan.

The move was made to help compensate for "a string of supply-side outage over and above" the loss of 1.5 million barrels per day (mbpd) of light sweet [i.e., easy to refine] Libyan crude oil, due to internal conflict in that nation, IEA said.

". . . [T]he market ledger this month looks slightly tighter than a month ago. Our balances for first-half 2011 [1H2011] show demand continuing to run ahead of supply, if a little less rapidly than in 2H10," IEA said.

"Major producers have recognized that demand for their oil is rising, with the seasonal uptick in 3Q11 refinery runs, and more generally as economic growth and short-term fuel substitution keep global and emerging market demand growth robust," IEA continued. “We welcome rising OPEC volumes seen in June (30.03 mbpd output), but the market needs still more oil for 3Q."

IEA continued, "This backdrop is simply a more vivid version of the one underpinning the IEA action, which commenced on 23 June. Member governments agreed to release 60 mb of strategic stocks for an initial 30 days, amid an ongoing disruption to light-sweet Libyan oil supplies, the anticipated rise in 3Q11 refiner and end-user demand and a likely hiatus before incremental OPEC barrels reach the market. Much ink has been spilt subsequently suggesting that the IEA action comes three months too late, depletes emergency stockpiles and has failed to reduce rampant crude and motor fuel prices. However, we feel compelled to point out that critics cannot have their cake and eat it too."

"Market intervention in late-February, when the Libyan crisis broke and prices surged by at least $10/bbl, would have been tempting, were price control really the prime motivation," IEA said. "But the presence of a supply disruption, and sharply higher prices is not, by itself, justification for a collective action. Market context is also important. Refiner crude demand was falling seasonally in March and April, but rising sharply in June and moving higher still in July and August, despite modest refining margins. Early-year industry stocks looked comfortable back in March, and there was a presumption then that other OPEC producers would immediately step in to boost supply to replace Libyan outages. In contrast, the absence up until June of major OPEC increases implied a real possibility that commercial stocks could fall to the bottom of their seasonal range, risking a renewed, damaging and sustained surge in international prices in 3Q11. The IEA therefore decided to act to address this supply-side issue, even though prices were then trending lower."

Marker crude prices fell by $5 per bbl immediately after the action was announced, IEA noted, adding, "Since then Brent futures have oscillated between $105-$119/bbl, and WTI between $91-$99/bbl. At writing, flat prices of $116/bbl (Brent) and $95/bbl (WTI) are close to those seen immediately prior to the action, but will doubtless fluctuate further in the weeks ahead. However, it is blinkered to focus on specific price levels, which were never the rationale for the action. Narrower sweet-sour spreads, modestly stronger refining margins and an easing of the steep backwardation evident before the release on the other hand all suggest a more benevolent market reaction. We acknowledge that the impact of the collective action will only be truly evident in hindsight. However, recognizing the flexibility and market liquidity it has already provided, we take a resolutely positive view so far."

IEA's move came in the wake of the last OPEC meeting on June 22, when three Middle Eastern nations – Saudi Arabia, Kuwait and the United Arab Emirates (UAE) – broke ranks from the other major producing member nations in wanting to increase production quotas to keep the world amply supplied. The three nations have since pledged to increase production in the absence of an all-OPEC accord, but there's a hiatus in the additional supply reaching the market.

Veteran OPEC-watcher Bhushan Bahree, senior director of global oil for IHS CERA, told Rigzone in a telephone interview: "Oil supplies are ramping up." Bahree added, "There was very little incentive for the other OPEC nations to agree to increase production. They have little or no spare capacity."

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Iran Oil Minister Accuses IEA of Breaching Principles

- Iran Oil Minister Accuses IEA of Breaching Principles

Monday, June 27, 2011
Dow Jones Newswires
VIENNA
by Benoit Faucon & Neena Rai

Amplifying criticism by oil producers of last week's release of oil from emergency stockpiles, Iran's oil minister Mohammad Aliabadi Monday accused the International Energy Agency of violating "principles" that limit when energy-consuming countries can tap reserves.

Alibabadi's comments, which preceded a formal energy dialogue between OPEC and the European Union later Monday, underscored how the IEA's controversial emergency release is straining relations between producers and consumers. The remarks came amid new signs Monday that suggested OPEC member Saudi Arabia will continue to raise output and as the IEA disclosed new details about its emergency release of oil.

Aliabadi, who is also OPEC president, said the IEA's move flouted the agency's commitment to respect market forces. His comments echoed other remarks in recent days by figures from the Organization of Petroleum Exporting Countries, who have said the IEA's move was aimed at lowering oil prices, not in responding to a true oil supply crisis. OPEC produces about one-third of the world's oil and meets regularly to try to influence oil prices.

"They, the IEA, have these principles. Why are they not abiding by those principles?" he said.

"Instead they are intervening in the market," Aliabadi said. "We believe that prices have to be set by markets."

An IEA spokesman Monday had no immediate comment on Aliabadi's remarks.

IEA officials have emphasized that they undertook the emergency release, just the third in agency history, in response to a lengthy outage of Libyan crude and not in an effort to reduce oil prices. The IEA is a Paris-based energy watchdog that represents the governments of the U.S. and other energy-consuming countries.

Some IEA members, including Germany and Japan, released equal amounts of oil and refined products, while the United States, released only crude oil, according to IEA data released Monday. Still other countries, including France and Italy, released refined products and not crude, according to the data.

In total, an additional 41.6 million of the 60.6 million in emergency oil will come from crude oil with the rest coming from refined product, according to the data.

Oil prices continued to decline Monday following the IEA's actions and as markets continued to fret over the Greek debt crisis. Light, sweet crude for August delivery traded down $1.11, or 1.3%, to $90.05, on the New York Mercantile Exchange. Brent crude on the ICE Futures Europe exchange fell $1, or 0.1%, to $104.12 a barrel.

Many market watchers anticipate that some leading OPEC producers will proceed with plans to raise oil output, in spite of the IEA's action. Following the breakdown of OPEC talks on June 8, Saudi Arabia, Kuwait and the United Arab Emirates signalled they would unilaterally boost oil output to meet expected demand. The thinking is that even if the IEA oil goes to industrialized countries, the additional oil from OPEC members could go to Asia.

An official with Maersk Tankers, one of the world's largest owners of crude oil carriers, said Monday he expects an increase in July and August crude shipments from Saudi Arabia to Asia.

"We anticipate that crude oil transportation from Saudi to Asia should be even stronger than it was for June," said Claus Gronborg, head of crude for Maersk Tankers. Maersk Tankers, is a unit of Danish industrial conglomerate A.P. Moller-Maersk A/S.

Gronborg said it was "too early" to predict how it would impact the global shipping market.

"How the IEA news will impact the market short term will depend on where the extra oil goes to. Long term, we do not expect the release of Strategic Petroleum Reserve to have any impact."

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Commodity Corner: Oil Up, Brent Falls on IEA's Decision

- Commodity Corner: Oil Up, Brent Falls on IEA's Decision

Friday, June 24, 2011
Rigzone Staff
by Saaniya Bangee

Oil futures remained nearly flat Friday as investors weighed the IEA's decision to release an emergency supply of 60 million barrels of oil. Both NYMEX and Brent crude had seen a recent surge in prices due to Libya's civil war.

Light, sweet crude added 14 cents to settle at $91.16 a barrel. Oil prices fluctuated between $89.82 and $92.34 Friday. For the week, crude prices lost $1.85, or 2 percent.

While analysts and investors assess their position on the IEA's surprise decision, Brent prices plunged $2.14 Friday. Ending the week at $105.12 a barrel, Brent futures settled at their lowest since Feb. 18. Brent, which is used in many international blends, had rallied in the wake of the unrest in Libya.

Additionally, Europe's debt problems also pressured Brent to decline Friday. The euro dropped on uncertainty of whether Greece's parliament will approve additional bailout funds.

The intraday range for ICE Brent crude was $103.62 to $108.70 a barrel.

Meanwhile, front-month natural gas gained 3.6 cents Friday, settling at $4.23 per thousand cubic feet. Prices peaked at $4.25 and bottomed out at $4.17.

Reformulated gasoline for July delivery traded between $2.76 and $2.88 to end Friday's trading session at $2.78 a gallon.

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Commodity Corner: Crude Drops on IEA's Surprise Move

- Commodity Corner: Crude Drops on IEA's Surprise Move

Thursday, June 23, 2011
Rigzone Staff
by Saaniya Bangee

Crude prices plummeted to a four-month low Thursday after the International Energy Agency (IEA) said it would release an emergency oil supply to alleviate high prices.

In an attempt to offset the supply disruption caused by Libya's civil war, the IEA said it will release 60 million barrels of oil over a 30-day period. Its members will release 2 million barrels of oil per day (bpd). Half of the amount will be provided by the U.S. Strategic Petroleum Reserve, which currently stores 727 million barrels of crude.

The IEA last tapped emergency resources in September 2005 after Hurricane Katrina disrupted production on the U.S. Gulf Coast.

Light, sweet crude lost $4.39 Thursday, settling at $91.02 a barrel. Prices traded as low as $89.69 and peaked at $94.47. Meanwhile, Brent crude ended Thursday's session at $107.26 a barrel, down $6.95. Goldman Sachs claims IEA's surprise release could cause Brent prices to decrease by $10-$12 a barrel by the end of July.

Likewise, natural gas for July delivery settled lower at $4.193 per thousand cubic feet. The drop came on government reports showing an increase in U.S. inventories. The U.S. Energy Information Administration (EIA) said stockpiles grew by 98 billion cubic feet last week. This marks the year's second-largest increase in U.S. natural gas inventories.

The intraday range for natural gas was $4.15 to $4.34 Thursday.

Front-month gasoline futures settled down 13.57 cents at $2.84 a gallon. Prices fluctuated between $2.785 and $2.955 a gallon.

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IEA Emergency Oil Release Aims to Protect Economy

- IEA Emergency Oil Release Aims to Protect Economy

Thursday, June 23, 2011
Dow Jones Newswires
LONDON
by James Herron

Acting to protect a fragile global economic recovery against a backdrop of continually high oil prices, the International Energy Agency said Thursday it will release 60 million barrels of oil from emergency stocks to address the supply shortfall from Libya.

The move, announced by the agency's executive director at a hastily-organized press conference in Paris, helped send oil prices sharply lower Thursday, the latest drop in the commodity amid increased uneasiness about the economic outlook.

"The global economy is still emerging from recession and it is essential that this recovery not be endangered by an oil supply shortage," IEA Executive Director Nobuo Tanaka said. "The situation is getting tighter and tighter," he said, adding: "we have to act now and to fill the gap."

The IEA almost never diverts from a its public mantra on the need for OPEC and other producers to pump more oil to keep the economy humming. But Tanaka and other IEA officials have sounded an increasingly brittle note over the economy in recent weeks. Tanaka told a St. Petersburg, Russia economic forum last week that he feared a "very hard landing" due to high prices.

The IEA's surprise decision comes less than three weeks after a meeting of the Organization of Petroleum Exporting Countries disintegrated into chaos as members couldn't agree on a plan to boost output. The IEA has subsequently praised unilateral moves by Saudi Arabia and others to boost output without the OPEC agreement. On Thursday, Tanaka said the emergency release was taken to make up for a delay before Saudi supplies hit the market.

The IEA, which represents consuming countries and is responsible for coordinating emergency releases, said it will add an extra 2 million barrels a day of oil, equivalent to around 2% of global supply, into the market for the next 30 days from emergency stocks.

The IEA consulted OPEC members, as well as Chinese officials and representatives from other countries not officially part of the IEA, IEA officials said.

The IEA's move gave further downward pressure to oil prices on a day in which gloomy economic data had already sent crude lower.

Even before the IEA announcement, oil prices had been trading lower Thursday following surprisingly poor labor department figures in the U.S. But the IEA news sent prices lower still.

Light, sweet crude for August delivery tumbled $5.42, or 5.6%, to $89.99 a barrel on the New York Mercantile Exchange. Prices fell as low as $89.69 a barrel earlier in the session, their lowest since Feb. 22.

Brent crude on the ICE futures exchange fell even further, giving up $7.66 or 6.7%, to $106.55 a barrel, a day after the European contract rose sharply.

Crude prices have dropped around 10% since the June 8 OPEC meeting. Investors have fixated their attention on fears of weakening consumer demand and the ongoing debt crisis in Greece has dominated headlines.

The IEA elected not to release oil from stocks earlier this year, when 1.5 million barrels a day of Libyan oil supplies were shut down by the civil war. However, as the Libyan conflict has dragged on in stalemate, the effect of loss of those crude supplies has become more pronounced, the IEA said.

"The normal seasonal increase in refiner demand expected for this summer will exacerbate the shortfall further. Greater tightness in the oil market threatens to undermine the fragile global economic recovery," the IEA said in a statement.

Demand for oil typically rises in the summer season due to increased gasoline use in the U.S. Oil demand has also exceeded expectations in China as electricity supply problems have prompted higher use of diesel for power generation in China. Oil prices have retreated in recent days, but consumers remain concerned about a supply crunch later this summer.

Previous IEA stock releases followed the first Gulf War and hurricane Katrina.

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Commodity Corner: Oil Increases on IEA View

- Commodity Corner: Oil Increases on IEA View

Thursday, June 16, 2011
Rigzone Staff
by Saaniya Bangee

Crude futures gained 14 cents Thursday on positive economic reports and raised forecasts by the International Energy Agency (IEA).

After fluctuating between $94.29 and $95.75, light, sweet oil rose by 0.2 percent to settle at $94.95 a barrel.

The IEA, during its medium-term report, urged OPEC to raise output levels. The IEA claimed global demand remains strong and increased its five-year global forecast by approximately 700,000 bpd.

Also pressuring oil prices was the modest increase in U.S. labor and housing markets. According to the Labor Department, initial unemployment claims fell by 16,000 for the week ended June 11. Meanwhile, construction on new homes rose 3.5 percent from the prior month.

Natural gas for July delivery plunged to a three-week low Thursday settling at $4.41 per thousand cubic feet. The 3.6 percent-drop came on weather forecasts indicating a decline in demand. The Department of Energy said U.S. gas inventories grew by 69 billion cubic feet, almost balanced with analysts' expectations.

The intraday range for natural gas was $4.408 to $4.595 Thursday.

Front-month gasoline ended the trading session at $2.95 a gallon, up 2.59 cents from the previous session. Prices traded between $2.93 and $2.99 a gallon Thursday.

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IEA: Oil Price Risks Hard Landing for World Economy

- IEA: Oil Price Risks Hard Landing for World Economy

Thursday, June 16, 2011
Dow Jones Newswires
ST. PETERSBURG
by Geoffrey T. Smith

The continuing high price of crude oil risks creating a hard landing for the world economy, the International Energy Agency's Executive Director Nobuo Tanaka said Thursday.

Addressing a briefing at the start of the St. Petersburg International Economic Forum, Tanaka said: "If the current oil price continues it will be to the detriment of the global economic recovery."

The current situation "is starting to resemble 2008, and we know that 2008 was a very hard landing for the world economy. We'd prefer a soft landing," Tanaka said.

The IEA is still monitoring the global oil supply situation in the wake of this month's fractious meeting of the Organization of Petroleum Exporting Countries, Tanaka said, against a background of evidence showing that the world needs more oil from OPEC, which controls around a third of the globe's production and is home to almost all of the world's spare production capacity.

OPEC's ministers last week refused to endorse a group-wide increase in output to take the edge off crude prices, to the frustration of its largest producer Saudi Arabia. Saudi also has the bulk of OPEC's spare capacity.

Earlier in the briefing David Fyfe, head of the IEA's oil markets division, said that current prices for crude oil don't reflect any degree of "excessive speculation," but rather reflected a genuine tightening in the world market.

Fyfe's comments came two days after French President Nicolas Sarkozy made a sweeping attack on speculation in commodities markets, continuing a campaign for greater regulation that has been the centerpiece of France's presidency of the Group of 20 largest industrialized and emerging economies.

Fyfe also noted Thursday that the IEA's research showed that oil prices do more to reflect exchange rates than vice versa.

Fyfe and other officials were summarizing a new IEA report on the outlook for the world energy market over the next five years. As reported, the IEA has revised upwards its estimate for average oil prices in that period by $19 to $103 a barrel.

The price of crude oil rose by nearly $2 a barrel in Europe and nearly $1 a barrel in the U.S. on the release of the report. At 0850, the benchmark Brent blend was trading at $114.78 a barrel on the Intercontinental Exchange, while the New York Mercantile Exchange's contract for oil for July delivery was up 82 cents at $95.63 a barrel.

Over 90% of the increase in global demand in the five-year period will come from emerging markets, Fyfe said. He also said that a "tidal wave" of new refining capacity in emerging markets will continue to pose an existential threat to many refineries in developed markets, estimating that the overhang of global refining capacity may reach 4 million barrels a day by 2016.

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IEA 'Still Assessing' Oil Market after OPEC Stalemate

- IEA 'Still Assessing' Oil Market after OPEC Stalemate

Tuesday, June 14, 2011
Dow Jones Newswires
PARIS
by Geraldine Amiel

The International Energy Agency is in talks with member countries following last week's OPEC meeting and is "still assessing" the oil market situation before considering any potential response, Executive Director Nobuo Tanaka said Tuesday.

Tanaka reiterated that the IEA "stands ready to act" if the market requires additional oil. At the same time, Tanaka, whose organization represents consuming countries, expressed confidence that Saudi Arabia could pump additional oil to meet supplies, he said in an exclusive interview with Dow Jones Newswires. The IEA has authority to coordinate an emergency response of oil from its member governments.

Tanaka's remarks came less than a week after a Vienna meeting of the Organization of Oil Exporting Countries concluded in acrimony after members failed to agree to boost output to meet anticipated demand growth. The surprising outcome continued to reverberate Tuesday, as OPEC's Secretary General expressed concerns that oil prices could rise later this year.

OPEC split last week on whether to boost output by some 1.5 million barrels a day, a plan favored by Saudi Arabia and some other Gulf producers. Some OPEC members, including Iran, were skeptical additional supplies were needed. The members that fought the increase have also tended to favor somewhat higher oil prices.

OPEC Secretary General Abdalla Salem Al-Badri, the official spokesman for the organization, said Tuesday that oil prices "will go up for sure" if the would rise later this year if the supply gap in many official forecasts comes to fruition, Reuters reported. The OPEC official was also quoted as saying high prices will hurt economic growth, Reuters said.

Also Tuesday, EU Energy Commissioner Gunther Oettinger told Dow Jones Newswires in Stockholm that the European Union plans to discuss oil market issues at a meeting with OPEC in Vienna later this month.

"We want to speak (with OPEC) about security of supply for 2011 and 2012 and to speak about what is a feasible price," Oettinger said in an exclusive interview.

Asked whether he was worried about a high oil price, Oettinger said: "No, I'm not worried".

Meanwhile, Tanaka said he was confident Saudi Arabia could use its spare production capacity to put additional oil on the market following the OPEC meeting. Saudi Arabia plans to immediately boost output to as much as 10 million barrels a day, Gulf sources have said.

The issue will be "how fast" the Saudis can put additional oil on the markets, Tanaka added, noting that Saudi domestic oil consumption is expected to increase during the summer.

Tanaka later told the audience that the at the IEA, "we stand ready to take all our options." But Tanaka said the IEA would tap emergency supplies only after a "disruption" such as if Saudi Arabia and other OPEC members were unable to pump more oil. He said some of the current anxieties were reminiscent of the oil market in 2008.

The IEA warned on May 19 that it was prepared to "consider using all tools" if OPEC failed to boost output, a statement that was seen by producers as a veiled threat that the IEA would tap strategic supplies if OPEC didn't pump more oil.

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IEA Sees Larger Role for Natural Gas

- IEA Sees Larger Role for Natural Gas

Monday, June 06, 2011
Dow Jones Newswires
by John Biers

Natural gas could be entering a "golden age" and represent a much larger portion of the global energy mix, but the fuel is still a fossil fuel and doesn't represent a panacea for climate change, the International Energy Agency said Monday.

The IEA, which represents the governments of consuming countries, said natural gas could rise by more than 50% from 2010 levels and account for more than a quarter of global energy demand by 2035. The estimates follow a recent surge of shale gas production in the U.S., which has significantly altered the energy picture in recent years in the U.S.

But the IEA cautioned that while an increased use of natural gas could boost energy security, it shouldn't overwhelm other energy forms that could be better in addressing climate change. IEA Executive Director Nobuo Tanaka expressed concern that governments over react against nuclear energy following the recent Japan crisis.

"While natural gas is the 'cleanest' fossil fuel, it is still a fossil fuel," Tanaka said. "Its increased use could muscle out low-carbon fuels, such as renewables and nuclear - particularly in the wake of the incident at Fukushima and the likelihood of a reduced role for nuclear in some countries. An expansion of gas use alone is no panacea for climate change," he said.

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IEA: Urgent Need for More Oil

- IEA: Urgent Need for More Oil

Thursday, May 19, 2011
International Energy Agency

The IEA Governing Board, at its regular quarterly meeting on May 18-19, examined oil market developments and their impact on the global economy. Despite a near-10% correction since May 5, oil prices remain at elevated levels driven by market fundamentals, geopolitical uncertainty and future expectations. The IEA Governing Board expressed serious concern that there are growing signs that the rise in oil prices since September is affecting the economic recovery by widening global imbalances, reducing household and business income, and placing upward pressure on inflation and interest rates. As global demand for oil increases seasonally from May to August, there is a clear, urgent need for additional supplies on a more competitive basis to be made available to refiners to prevent a further tightening of the market.

Additional increases in prices at this stage of the economic cycle risk derailing the global economic recovery and are neither in the interest of producing nor of consuming countries. Oil importing developing countries are most likely to be seriously affected by high oil prices, undermining their economic and social well-being. In these circumstances, enhancing consumer-producer dialogue is urgently important to reach both short- and long-term solutions. The Governing Board urges action from producers that will help avoid the negative global economic consequences which a further sharp market tightening could cause, and welcomes commitments to increase supply. We stand ready to work with producers as well as non-member consumers; in this constructive spirit, we are prepared to consider using all tools that are at the disposal of IEA member countries.

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