The timing was unhelpful, to say the least. As Javier Blas reports, the day after Opec agreed to raise its production, the International Energy Agency said the world would need less oil in the second half of the year than it had previously thought. It has cut its estimate of demand in the fourth quarter, which is when the Opec output hike will take effect, by 250,000 barrels a day to 87.8m, and cut its forecast of the "call on Opec" even more, by 300,000 b/d. That is not really the best possible support for the IEA’s argument that Opec should have done more. (The headlines from today’s IEA oil market report are on its site, although full details are not available to the public for another two weeks.)

However, even the IEA’s new prediction of fourth quarter demand is still some 700,000 b/d above Opec’s own  If the IEA is right, the market that is already tight, as Opec’s head of research Hasan Qabazard put it (watch the video here), will get even tighter. The reaction of the oil market suggests that no-one is worrying about flagging demand just yet.

Yet the IEA’s decision to cut its demand forecast was a result largely of a lower baseline being set by the numbers for June and July, when there was mild weather and some switching away from oil to other fuels. If the subprime crisis begins have a significant effect on global growth, then the oil market may look very different. As the IEA says "we may further revise our 2008 forecast as events unfold."

September 12th, 2007 in Oil, Opec | Permalink