International Energy Agency
Warns Of Energy CrisisBy Bruce Stanley
13 May, 2004
stltoday.comLONDON - Demand for oil is growing at its highest rate in eight years, but the economic recovery could fizzle unless suppliers drill new wells and produce additional crude, the International Energy Agency said Wednesday.
With crude-oil prices soaring, OPEC, which pumps about a third of the world's oil, announced plans for talks next week to consider a Saudi Arabian proposal that the group raise its production ceiling in a bid to cool the market.
In trading Wednesday in New York, June crude futures touched $40.92 a barrel and settled up 71 cents, or 1.8 percent, at $40.77, the highest close on the New York Mercantile Exchange since futures began trading in 1983.
Oil-futures contracts last traded above $40 a barrel in the fall of 1990 ahead of the Gulf War.
The growth in demand for crude continues to outstrip expectations, the Paris-based energy agency said in its monthly oil market report.
Given China's thirst for imported oil and the soaring demand for gasoline and jet fuel in industrialized countries, the agency revised its 2004 demand forecast upward to 80.6 million barrels a day - an increase of 2.5 percent over last year. World demand hasn't risen this fast since 1996, the agency said.
The agency is the energy watchdog for 26 wealthy, oil-importing countries. Although it analyzes the supply and demand for crude, it avoids trying to predict prices.
Reviewing the price surge of recent months, the energy agency said that geopolitical concerns in the Middle East, bottlenecks in U.S. gasoline markets and an increase in speculative buying of oil futures contracts all have had an effect.
Most important, however, has been the stingy output from the 11-member Organization of Petroleum Exporting Countries. By forcing importers to run down their oil inventories, OPEC has been the decisive factor in creating "a market on steroids," the energy agency argued.
The agency noted that higher demand for oil is a sign of a rebounding world economy. "But this welcome resurgence in economic activity brings to the fore the issue of securing the necessary supplies to sustain the recovery," it said.
The agency urged suppliers to boost investment in exploration for oil and called on refiners to increase their production capacity for gasoline and other refined products.
"That's really a critical point," said Jim Placke of Cambridge Energy Research Associates in Washington. "If you don't start going out to explore for and produce new resources, (then) 3 to 5 years from now when you need them they're not going to be there."
Many OPEC members already are pumping all they can to cash in on current high prices.
Saudi Arabia, OPEC's de facto leader, is the only member with significant capacity to pump more oil from existing fields. On Monday, Saudi Oil Minister Ali Naimi proposed that the group consider raising its production target by 6 percent, to 25 million barrels a day.
Although Algerian Minister of Energy and Mines Chakib Khelil argued against an increase, his Kuwaiti counterpart, Sheik Ahmed Fahd Al Ahmed Al Sabah, said Wednesday that Kuwait would raise production to its maximum capacity to try to nudge prices lower. Al Sabah advised other OPEC members to do the same.
"The organization seems to have been stung into making reassuring noises," the International Energy Agency concluded.
As if to confirm this view, OPEC President Purnomo Yusgiantoro said Wednesday that the group would hold informal talks next week to consider the desirability of increasing its production target as part of its "continuous commitment toward market stability."
He said that OPEC's representatives would meet on the sidelines of the International Energy Forum, an industry conference to be held May 22-24 in Amsterdam. He added that OPEC pumped 2 million barrels above its target in April.
"We have not discouraged our members from producing more because we want to do everything we can to stabilize prices. That is one of the cardinal objectives of our organization," he said.
The International Energy Agency reported a similar level of quota-busting, but it noted that Saudi Arabia and six other OPEC members had trimmed production last month in an effort to comply with individual targets.