Wednesday, May 14, 2008, Page 10
Record oil prices and a slowdown in advanced economies are set to curb
global oil demand despite growth in China and the Middle East, the
International Energy Agency (IEA) forecast yesterday, saying
stockpiling was a key factor.
Demand from emerging economies might be set back if and when
governments decide that fuel subsidies are unsustainable, the IEA said
in its monthly report.
It also provided figures showing a surge in production of biofuels.
On balance “despite continued strength in China and the Middle East, it
would seem that the risks to demand [for oil] remain on the downside,”
the IEA said, asking: “Do we need more oil?”
“While consumers may be adjusting to high oil prices, the full impact
of current high oil prices in excess of US$120 per barrel, if
sustained, has yet to be factored into either behavior or forecasts,”
it said.
“The most recent data and estimates suggest that the oil market should
have been in surplus for the past two months and should remain in that
position for the rest of 2008 — as long as OPEC maintains output at
current levels,” it said.
A driving factor in the surge of oil prices recently to a record of
US$125 per barrel was competition between users seeking to replenish
oil inventories and users buying oil to meet immediate demand.
By deciding not to address the matter of inventories until September,
OPEC had probably intended to send a message of stability to markets.
But it had created instead a perception that it was happy with a price
of US$100 a barrel or more and would not increase output.
This had ratcheted up the price baseline, the IEA surmised.
But, forecasting “further downward adjustments to demand,” the report
said that one such factor which might emerge was the unwinding of fuel
subsidies.
“Faced with the realization that high prices may be with us for some
time, several countries, such as Indonesia, are reassessing the
budgetary reality of sustaining oil price subsidies,” it said.
“It will not be easy to unwind them,” the IEA warned, saying that “many
countries are wary of civil unrest, and may therefore try to cushion
low-income earners with other payments.”
But “when such shifts do come, they could cause temporary downward shocks to demand.”
China, the IEA said, had recently decided to boost subsidies as a
response to shortages, but it said that the cost of this could be huge.
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Source: http://www.taipeitimes.com/News/worldbiz/archives/2008/05/14/2003411864
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