x Abu Dhabi, UAEThursday 27 July 2017

IEA says global oil demand is recovering

Agency says stronger demand for oil will reduce the large amounts of crude in storage worldwide and higher prices could jeopardise the economic recovery.

Stronger demand for oil will reduce the large amounts of crude in storage worldwide and higher prices could jeopardise the economic recovery, the International Energy Agency (IEA) said yesterday. Storage tanks across the world now hold enough crude oil to meet global demand for 63 days, but an economic recovery and continued OPEC production limits could push levels down to 57 days by the end of the year, said Nobuo Tanaka, the IEA secretary general.

The amount in storage is a key barometer of global demand and a factor in the oil price, as it acts as cushion against the risk of a disruption in oil supply. Oil prices have risen 24 per cent in the past two months and many experts are predicting prices will reach $75 a barrel by the end of the year. Mr Tanaka said optimism about an economic recovery was ultimately behind the price rise, but speculative investors on world oil markets had increased volatility.

"Our data on oil demand isn't so robust ? fundamentals aren't supporting current price moves," Mr Tanaka told Dow Jones. "If the economy isn't really recovering, this rapid price increase may undermine the economic recovery. That is our concern." Mr Tanaka told Reuters that oil demand was probably at "a turning point, or we are very close to it". Oil prices in New York and Dubai were little changed yesterday. Oman sour crude on the Dubai Mercantile Exchange fell $0.71 to $67.81 a barrel. The IEA, a Paris-based group representing consumer nations, generally favours a level of about 57 days of stocks, while OPEC ministers push for figures of between 52 and 54 days.

"The IEA is really representing the consumers so the policies they recommend are the ones that ensure that the prices do come down," said Manouchehr Takin, an oil analyst at the Centre for Global Energy Studies in London. "There's a lot of leeway in how you interpret these things." Mr Takin said that in the short term, the high level of oil inventories should have a dampening effect on prices but an inflow of new investment from funds that normally focus on other sectors was keeping prices high. "That is the paradox: it should make the price come down when you have so much inventory, but the investors with lots of funds can't invest it anywhere in the world," he said. "This is a vicious circle that can go on and on."

Hasan Qabazard, OPEC's head of research, last week said the high storage levels were being reduced at an average rate of 1.2 million barrels a day, which would ultimately support price gains. * with agencies cstanton@thenational.ae