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International Energy Agency says oil demand strong, expected to grow Analysts dispute level of OPEC compliance with production quotas; next meeting set for Sept. 22 Bruce Stanley Associated Press Business Writer
Robust growth in the U.S. economy and a continued recovery in Asia should cause demand for oil to outstrip available supplies through the winter, so long as OPEC members resist the temptation to exceed current output levels, a respected industry survey said Sept. 10.
Prices for oil and refined products continued to rise sharply in July and August, the International Energy Agency said in its report. Prices for Brent crude have more than doubled since February, while U.S. gasoline prices in July were more than 10 percent higher than a year ago.
But the IEA survey raised uncertainties about the future direction of prices and supplies.
It assumed that OPEC, which produces almost two-fifths of the world’s oil, would stick to its current levels of production for the rest of the year.
As in the past, however, higher prices could tempt some OPEC members to cheat on their quotas in an effort to maximize short-term profits. Such cheating could lead to a glut of oil that would in turn cause prices to fall.
The Paris-based IEA is part of the Organization for Economic Cooperation and Development, a group of the world’s most developed nations.
Its report suggested that some of the recent increase in prices might not be justified, due to a reduction in July of only 70,000 barrels per day in inventories held by the world’s wealthiest countries. This means that an expected third-quarter drawdown in stocks is off to “a very slow start,” the report said.
Seasonal demand to kick in But as autumn temperatures start to cool, a seasonal increase in demand for heating oil should help keep prices high.
Brent prices jumped 6 percent in August, and October contracts of Brent were trading Sept. 10 at $23.01 per barrel.
West Texas Intermediate crude rose 5 percent last month and was trading Sept. 10 in New York at $23.19 per barrel.
As a result, energy costs in the United States rose in August by a sharp 3.7 percent, the biggest one-month gain since April. That earlier spike in energy prices had put the Federal Reserve on inflation alert, and in June the central bank raised interest rates for the first time in two years.
Global demand for oil is expected to increase by 2.43 million barrels per day in the last quarter of the year, while supplies are forecast to rise by just 1 million barrels during the same period, the survey said.
World oil production averaged 73.15 million barrels per day last month, a drop of 200,000 barrels per day from July.
The IEA report said the main causes for this decrease were a daily production cut of 150,000 barrels by OPEC’s biggest producer, Saudi Arabia, and fewer exports by suppliers in the former Soviet Union.
Temporary closures of oil rigs in Norway due to maintenance work also had an effect.
OPEC compliance an issue By far the biggest variable in the agency’s outlook is OPEC, which so far has shown an unusual degree of discipline in sticking to output cuts agreed by its members in March.
The IEA estimated that the cartel’s compliance rate with those cuts continued to be high in August, at 92 percent. OPEC’s compliance rate in July was revised downwards from 91 percent to 89 percent.
However, some industry analysts cast doubt on the IEA’s assessment.
“On the whole, I would say the OPEC numbers are too conservative,” said Mehdi Varzi of the investment bank Dresdner Kleinwort Benson.
Varzi said OPEC’s actual compliance rate is no better than 85 percent, a view that suggests some members might be slipping back into a habit of cheating on their quotas.
Mark Redway, of the brokerage Greig Middleton and Co. Ltd., said OPEC’s compliance rate could actually be in “the high 80s.”
Nigeria, historically one of OPEC’s less-disciplined members, saw its monthly output fall in August for the third month in a row. The IEA attributed this decline to disruptions caused by civil strife in southern Nigeria, where most of the country’s oil is produced.
On the other hand, Iran, OPEC’s No. 2 producer, boosted its output last month by an estimated 110,000 barrels per day. Kuwait, Qatar and Algeria increased their production by smaller amounts, the report said.
OPEC members will meet Sept. 22 in Vienna, Austria, to decide whether to change their levels of production.
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