International Energy Agency Warns That Oil Prices Could Surge Again
NEW YORK — After last year's record-breaking rally, crude oil prices might surge again this year if global demand does not slow, because the world still lacks sufficient production and refining capacity, the International Energy Agency (IEA) said in its monthly report, according to the New York Times on January 18.
Consumption this year is expected to grow 1.7 percent, about half of last year's 3.3 percent growth. But an unexpected spike in demand from China or sudden cuts in global supplies could send the price soaring again while production, pipelines and refineries remain very tight, said the agency, a Paris-based advisory group to 26 industrialized countries.
After being criticized for misreading consumption early last year and playing down the impact of growing demand in Asia, and especially in China, the energy agency prefaced its report with a note of caution and a list of questions it left largely unanswered.
"Most forecasters, the IEA included, expect oil demand growth to slow in 2005 from the torrid pace of 2004," the report said. "But what happens if it doesn't? Given that last year's demand growth came as a complete surprise to market participants, how can one dismiss concerns that demand growth might once again be underestimated? If oil consumption were to surge in 2005 as fast as in 2004, would producers be able to rise to the challenge?"
The agency's monthly assessment of oil markets is among the most widely circulated reports in the industry. It is used by OPEC members to set policy and by analysts to write market reports.
Demand this year is expected to reach 83.9 million barrels a day, up 1.4 million barrels from last year, according to the energy agency's latest forecast. While significant, that falls short of last year's increase of 2.7 million barrels a day.
Some analysts faulted the agency for once again underestimating how much more oil China would consume. The agency said it expected demand there to grow this year by 360,000 barrels a day, to 6.73 million barrels a day. Last year, Chinese demand grew by 850,000 barrels a day, and was the largest contributor to the surge in the world's consumption.
"They massively underestimated growth for China last year and are underestimating growth again this year," said Kevin Norrish, an oil analyst at Barclays Capital in London. At the beginning of last year, the agency forecast global demand to reach 79.6 million barrels a day for 2004; in the latest report it estimated that actual demand was 82.4 million barrels a day.