By Jessica Donati and Zaida Espana / Reuters
LONDON: Incremental oil supply from non-OPEC countries that is running short of expectations and a high level of supply outages are supporting oil prices despite slack global fuel demand growth, the International Energy Agency (IEA) said on Wednesday.
Oil supply from non-OPEC will rise only 300,000 barrels a day in the first quarter, 190,000 bpd less than previously forecast, the IEA said in a monthly report.
The agency, which advises industrialized nations on energy policy, said unplanned shut-ins now were topping 750,000 bpd. It downgraded its full year non-OPEC production growth forecast to 730,000 bpd from 900,000 bpd.
Combined with sanctions on Iran, supply outages have helped push Brent crude up by more than 17 percent since the start of the year to $126 a barrel on Wednesday.
“The main change in our report is to cut our assessments of production in Sudan, South Sudan and Syria,” said David Fyfe, head of the oil industry and markets division of the IEA.
South Sudan has shut down its entire output of about 350,000 bpd since January following a row with Sudan over how much the landlocked new nation should pay to export its oil through northern pipelines.
Fyfe said that no real progress ha d been made towards a solution but the agency assume d a gradual recovery in Sudanese oil output in the second half of the year.
Syrian supply, under embargo to many Western countries, is expected to remain at minimal levels throughout 2012.
Supply outages have helped cut inventories in industrialized nations, despite slow demand growth.
“Put simply, a post-recession OECD industrial stock overhang has gradually been whittled away. Inventories, notably crude in Europe and the Pacific, look very tight in absolute terms,” the IEA said.
OECD inventories rose by a “muted” 13.6 million barrels in January to 2.61 billion barrels, it said, putting inventory levels below the five-year average for the seventh consecutive month.
Slow supply growth from non-OPEC has allowed OPEC to raise production without undercutting oil prices. Output from OPEC rose for the fifth month in a row to 31.42 million bpd, highs not seen since October 2008, led by Saudi Arabia and the recovery in post civil war Libyan production.
Saudi supplies rose during the month to a near-three decade peak of around 10 million bpd, leaving spare capacity at less than 2 million bpd.
“The market’s relatively slim ‘buffer’ suggests a bumpy ride in the months ahead,” the IEA said
The IEA left its global oil demand growth forecast unchanged at 800,000 bpd, growth of less than 1 percent on the world oil market. OECD oil demand will shrink by 400,000 bpd, that for non-OECD countries including China will rise by 1.2 million bpd.
“Demand growth will likely remain stunted by weaker economic prospects, the more so if prices stay high,” the IEA said.
The agency calculates that typically the world economy must grow by more than about 2 percent for the oil market to require additional supply. Economic growth this year is forecast at 3.3 percent from 3.8 percent in 2011.