PARIS (MNI) – Today’s oil market is caught between a fragile global
economy, which creates downside risks to demand, and geo-political
turmoil, chronic supply disruptions and the “Iranian premium,” which are
creating upside price pressures, the International Energy Agency said
Wednesday.

“The idea of an oil market torn between opposing bullish and
bearish forces became widely accepted as the fizzling of the economic
recovery and a slowdown in demand growth served as a bearish backdrop
for market disruptions and ongoing geopolitical concerns on the supply
side,” the IEA said in its monthly Oil Market Report. “It has since
reached a new paroxysm.”

The recent price rally “set off alarm bells in the world’s
capitals” at the same time as sanctions against Iran removed “large
volumes of oil” from the market, the agency noted.

While the IEA left its projections for global demand growth this
year and next unchanged at around 800,000 barrels per day (b/d), it
hiked average expected demand levels by 100,000 b/d to 89.8 million b/d
this year and to 90.6 mb/d for 2013 due to upward revisions for last
year.

“There have even been some bullish signals on the demand side as
estimates of global demand, belying bearish forecasts, beat
expectations” during the first half of this year, the agency noted.

Moreover, not all the supply news is bullish, as North American
shale gas is creating a “supply bonanza”, while Iraqi output recently
rose to highs unseen since the Iran-Iraq war, it added.

As projections were unrevised for non-OPEC supply growth of 400,000
b/d this year and 700,000 b/d next year, the IEA hiked the expected
“call” on OPEC crude and/or stocks by 100,000 b/d to an average of 30.3
mb/d for this year and to 30.2 mb/d for next year. The “call” is
expected to peak in the current quarter at 31.1 mb/d, then fall back to
30.6 mb/d in 4Q.

Global oil supply dipped by 100,000 b/d in August to 90.8 mb/d in
August from upwardly revised July estimates, as OPEC liquids production
growth failed to offset fully the unplanned outages in non-OPEC
countries.

OPEC crude oil supply edged up 45,000 b/d to 31.55 mb/d. Angola and
Nigeria posted the largest increases, while Saudi Arabia, Iran and Libya
posted declines. OPEC’s effective spare capacity is estimated at 2.49
mb/d. Non-OPEC supply fell by 200,000 b/d in August and was 100,000
lower on the year.

OECD industry crude stocks fell by 16.5 million barrels in July and
are estimated 23.7 mb lower in August as a result of strong refining
crude runs. But products stocks rose by 32.8 mb and 4.2 mb,
respectively. “Total industry oil builds of 10.6 mb for July were below
normal and preliminary data hint at counter-seasonal draws in August,”
the IEA said.

“On a forward demand basis, inventory cover looks more comfortable,
due mostly to diminishing demand prospects through October,” it said.
Total OECD stock cover now stands at 58.3 days, 0.2 days above end-June
and 0.6 days above a year ago.

“OECD inventory readings, once a reliable proxy for global stock
movements, are losing relevance as non-OECD economies catch up with
mature economies in oil use and OECD stock draws come along with large
but unreported builds in non-OECD countries,” the agency acknowledged.

“The rise of those implied stocks has been nothing short of
dramatic,” it said, citing the 2.2 mb/d jump in its “miscellaneous to
balance” item in the first half of this year.

– Paris newsroom +331 4271 5540: ssandelius@mni-news.com

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