Both Brent and WTI crude oil prices advanced as much as 1.2 percent earlier today before an US Energy Department report tomorrow that may show US oil supplies fell for a second week.

Oil Demand is Slowing

“Oil demand growth has slowed. This is market that’s been tightening for the past 12 to 15 months. This year the tightening has been more about supply outages than demand.” according to David Fyfe, head of the IEA’s industry and markets division.

US WTI crude oil futures for October delivery was at $88.26 a barrel, up 7 cents, in electronic trading on the NYMEX at 16:27 Singapore time. It earlier rose as much as $1.02 to $89.32 a barrel. The contract yesterday increased 95 cents to $88.19. WTI oil prices are 14 percent higher overall in 2011.

September 2011 IEA Oil Report Highlights

• Uncertain global economic and financial prospects underpinned volatile oil futures prices in August and early September. WTI and Brent followed divergent paths last month, with the price spread
hitting record levels of over $27/bbl in early September. Prices at writing were $111/bbl for Brent and $86/bbl for WTI.

• Global oil demand is revised down by 0.2 mb/d for 2011 and by 0.4 mb/d for 2012 on lower non OECD readings and reduced economic growth expectations. Global GDP growth is now seen at 3.9% in 2011 and at 4.2% in 2012 with significant downside risks. Demand estimates now stand at 89.3 mb/d in 2011 (+1.0 mb/d year on year) and 90.7 mb/d in 2012 (+1.4 mb/d year on year).

• World oil supply rose by 1.0 mb/d in August, to 89.1 mb/d, with non OPEC production up by 0.8 mb/d. Rising US and Latin American production offset heavy maintenance and field outages in the North
Sea. Non OPEC supply has been revised lower to 52.8 mb/d in 2011 on outages in the Middle East and China, rising to 53.8 mb/d in 2012.

• August OPEC crude oil output was up by 165 kb/d, to 30.26 mb/d with production still 1.04 mb/d below the 31.3 mb/d 3Q11 ‘call on OPEC crude and stock change’. However, the ‘call’ for 4Q11 has been
lowered by 0.2 mb/d to 30.5 mb/d, due to weaker demand. With the end of Libya’s civil conflict on the horizon, we have revised up our Libyan capacity outlook for 4Q11 by 0.1 mb/d, to 0.3 mb/d.

• Global refinery crude runs have been revised down by close to 0.3 mb/d for both 3Q11 and 4Q11 in light of the weaker demand outlook and higher outages scheduled for a number of countries. Global throughputs are now seen rising 1.7 mb/d in 3Q11 versus 2Q11, to 75.6 mb/d and averaging 75.4 mb/d in 4Q11.

• OECD industry oil inventories rose by 10.8 mb to 2 687 mb, or to 58.4 days of forward demand, in July. Stocks fell below the 5 year average for the first time since the economic recession of 2008. Preliminary data indicate OECD stocks remained tight in August, rising by a modest 0.6 mb.

Latest WTI Oil Price

US Light crude oil futures for September 2011 delivery was trading at $81.71 a barrel, 07.10 GMT this morning in electronic trading on the NYMEX. The US contract ended yesterday’s trading session at $81.75.

Stock Markets Recovering?

Asian stock markets jumped Wednesday following a surge on Wall Street triggered by a US Fed pledge to keep interest rates super low for the next two years to help the ailing US economy.

However many analysts believe investors will remain wary about the US central bank’s expectation that the US economy will remain weaker for longer than previously forecast.

World stock markets have been falling since the start of this month on fears of a slide back into recession for the US, as well as the ongoing eurozone debt crisis. WTI oil prices rose to near $82 a barrel, while the dollar slid against the yen and the euro.

OPEC and EIA Forecasts

OPEC cut its crude oil demand forecasts for 2011 and 2012 amid economic worries, the cartel now expects oil demand to increase to 88.1 million barrels per day, down 0.15 million barrels per day from June’s forecast, this year and then to 89.4 million barrels per day, down around 0.1 million barrels per day from June 2012.

Meanwhile, The US EIA said in its Short Term Energy Report that it reduced crude oil price forecast to $95.71 for 2011 and 101 for 2012, down from corresponding forecasts of $98.43 and $102.5 made in June.

Latest WTI Oil Price

US Light crude oil futures for July 2011 delivery was trading at $94.20 a barrel, 07.40 GMT this morning in electronic trading on the NYMEX.

IEA Oil Price Forecast

The IEA (International Energy Agency) on Thursday raised its 2015 oil forecast and boosted its five year oil price forecast by $19 a barrel, saying that oil demand will rise more than previously expected and the market will continue to suffer from a lack of oil supply flexibility.

The agency also said there is a clear need for additional oil from OPEC member countries, which failed to reach a consensus last week on higher oil production quotas.

The IEA believe that without higher OPEC output, the oil market will suffer from lack of supply, resulting in overheating prices and damage to the global economy, the IEA said.

But in the short term, oil prices remain volatile to recent stock market falls and a stronger US dollar, which is benefiting from the latest euro debt concerns surrounding Greece.

Latest WTI Oil Price

US Light crude oil futures for July 2011 delivery was trading at $99.25 a barrel, 06.20 GMT this morning in electronic trading on the NYMEX.

The EIA issued their oil supply warning ahead of next month’s meeting of OPEC. Senior IEA officials, including its executive director Nobuo Tanaka and chief economist Fatih Birol have made similar warnings in the past, but yesterday’s intervention by the governing board marked a departure from the IEA’s usual approach of not commenting on policies adopted by the big oil producers.

Growing Signs that Oil Prices Affecting Recovery

“Despite a near 10 percent correction since 5th May, oil prices remain at elevated levels driven by market fundamentals, geopolitical uncertainty and future expectations. There are growing signs that the rise in oil prices since September is affecting the economic recovery by widening global imbalances, reducing household and business income and placing upward pressure on inflation and interest rates.” the IEA’s statement said.

It went on to say that the governing board “urges action from oil producers that will help avoid the negative global economic consequences which a further sharp market tightening could cause, and welcomes commitments to increase supply”.

Despite the correction in both WTI and Brent oil prices this month, oil futures for both contracts have climbed by more than 20 percent since the start of 2011, driven up in part by the unrest in the Middle East and Africa.

Latest Brent Oil Price

In London, Brent crude oil futures for June 2011 delivery was trading at $114.27 a barrel, 07.45 GMT this morning on the ICE Futures Exchange, after closing off Thursday’s session at $113.16.

US Oil Demand Weaker

“We clearly have seen demand growth slowing compared to last year’s level and we’re seeing it very much concentrated where the price feed through is most direct, notably in North America in terms of gasoline.” said David Fyfe, head of the IEA’s oil industry and markets division.

The IEA believes that worries about the possible economic impact of high oil prices had come together with weak economic data from the US, China and Germany and had contributed to the profit taking which has pushed oil prices lower in the past week.

Brent Oil Futures – Closing Price

Brent crude oil futures for June 2011 delivery ended the week’s trading session at $125.95 a barrel on the ICE Futures Exchange yesterday evening, $1.91 higher than last week’s closing price of $124.04 a barrel.

Oil Prices – Danger Zone

“We are in the danger zone now with oil prices and how the global economy is responding. The US is not the country which sets the tone for global oil demand growth. We need more oil.” said Fatih Birol, head economist at the IEA.

In an interview with Dow Jones Newswires, Birol said that world oil demand is set to increase by as much as three million barrels a day over the next few months, and oil prices could march higher unless major producers pump more oil.

Oil demand in China, Brazil and other regions continues to march higher. Birol said the strength of oil demand in these regions, and not the US, is crucial in determining future oil prices.

Brent Crude Oil Price

According to Birol, Brent crude oil futures, Europe’s main benchmark for oil trading, more accurately reflects the cost of oil worldwide, as supply issues depress the value of US NYMEX traded WTI oil futures (West Texas Intermediate) crude.

The IEA and Peak Oil

The IEA is an independent agency formed out of the wake of the 1973 oil crisis. It forecasts global oil production, monitors the international oil market and other energy sectors.

Only five years ago the IEA confidently stated that world oil production was set to rise to 120 million barrels a day by 2030.

But IEA chief economist Fatih Birol says the world’s crude oil production peaked in 2006 and says that oil prices are likely to rise 30 percent over the next three years. That would mean Brent oil prices would be trading at $164 a barrel in 2014.

Anyone Seen 4 New Saudi Arabia’s?

“The existing oilfields are declining so sharply that in order to stay where we are in terms of production levels in the next 25 years, we have to find and develop four new Saudi Arabias.” commented Birol, and says one of the conclusions the IEA has come to is that the age of cheap oil prices are over.

Latest WTI Oil Price

US Light crude oil futures for June 2011 delivery was trading at $112.24 a barrel, 07.00 GMT this morning in electronic trading on the NYMEX.

EIA Weekly Oil Report

The EIA (Energy Information Administration) reported that US oil inventories shrank by 2.32 million barrels last week while analysts had expected an increase of 1.6 million barrels. The EIA said that inventories of gasoline and distillates also headed lower.

However, at 357 million barrels, US crude oil inventories are above the upper limit of the average Range for this time of year.

Both WTI and Brent oil prices traded higher for a second day as stock markets climbed on optimism the economic recovery is accelerating, while the US dollar dropped to the lowest level against the euro in more than a year, boosting new demand for buying back into oil.

Latest Brent Oil Price

In London, brent crude oil futures for June 2011 delivery was trading at $122.87 a barrel, 10.40 GMT on the ICE Futures Exchange after hitting $123 earlier on in the trading session.

The Price of Crude

The price of crude, if sustained at currenct levels or more for the rest of 2011, would cause similar oil demand destruction as the world experienced in 2008 that led to the global economic crisis, Nobuo Tanaka, IEA executive director, said.

“We have already observed slower oil demand growth rates in China, where import growth fell from a 16pc increase in December to just 9.6pc in February. Clearly, the speed of growth is declining.” said Mr Tanaka.

Both Brent and WTI oil futures gained as much as 1.5 percent in trading today as the US dollar hit it’s lowest level against the euro in a more than a year, boosting the appeal of commodities to protect against inflation. Gold prices traded above $1500 an ounce for the first time ever yesterday.

“The weaker US dollar and stronger equities offset concerns over European sovereign debt and slowing demand from high oil prices.” said Mark Pervan, head of commodity research at Australia & New Zealand Banking, Melbourne.

The IEA, which advises 28 countries on energy policy, also said OPEC’s oil production fell only slightly in February as OPEC member countries stepped in to compensate for the loss of Libyan crude oil output.

OPEC Spare Capacity at Three Year Lows

As a result of the ongoing situation in Libya, the IEA calculated that OPEC’s spare capacity has fallen to its lowest level since late 2008 (around 4 million barrels per day) thus reducing its ability to cushion any new world oil supply shock.

“Empirically, past oil price shocks have shown a discernible effect on GDP. Supply shocks tend to be felt just a few months thereafter, while demand shocks usually have an impact roughly a year later.” the IEA said in its monthly report.

The agency lowered its outlook for the global demand growth by 10,000 barrels per day to 1.44 million barrels per day.

“Even though limited volumes of regional production are affected so far, market perception that Saudi Arabian facilities, the bulwark of OPEC spare capacity, could be targeted, has brought the geopolitical risk premium back with a bang.” the report said.

IEA Oil Market Report – Highlights

Political unrest in the Middle East and North Africa, currently focused on Libya, has injected volatility into futures markets, with oil prices gyrating by an average $3/bbl daily. By mid March benchmark crudes were trading $10‐15/bbl above average February levels, with Brent last seen just shy of $114/bbl and WTI around $100/bbl.

Global oil product demand growth remains largely unchanged at 2.9 mb/d in 2010 and 1.4 mb/d in 2011, but high oil prices entail significant downside risks to this year’s outlook. Baseline changes in non OECD Asia and stronger Middle East levels lift absolute demand slightly to 87.9 mb/d and 89.4 mb/d, in 2010 and 2011 respectively.

World oil supply rose to an all‐time high of 89 mb/d in February, up 0.2 mb/d from January. Non‐OPEC oil supply rose 0.3 mb/d to 53.2 mb/d on re‐instated Alaskan output. 2010 non‐OPEC estimates are left unchanged at 52.8 mb/d, while the 2011 forecast is raised by 0.1 mb/d, to 53.6 mb/d, on stronger‐than‐expected Canadian output.

OPEC crude oil output in February fell by 95 kb/d to 30.05 mb/d. A near 200 kb/d average monthly loss of Libyan supply was partly offset by higher production from Gulf states. OPEC’s ‘effective’ spare
capacity, excluding Libya, is now near 4.08 mb/d, its lowest since end‐2008. The ‘call on OPEC crude and stock change’, revised up for 1Q11, is cut going forward, averaging 29.9 mb/d for 2011 overall.

Global refinery runs are expected to drop sharply through 1Q11 to reach a seasonal low of 73.5 mb/d in March, when refinery maintenance peaks, before rebounding to 75.3 mb/d in June. 1Q11 runs are forecast to average 74.6 mb/d (+2.0 mb/d y‐o‐y) rising to 74.8 mb/d (+1.0 mb/d y‐o‐y) in 2Q11.

January OECD industry inventories rose by 32.0 mb to 2 695 mb and forward demand cover increased to 58.2 days. Preliminary February data point to a sharp 43.4 mb decline, while oil in short‐term floating storage grew by 8 mb.

The IEA estimates social upheaval in Libya has halted between 850,000 and 1.0 million barrels per day of the country’s total oil output of 1.6 million barrels per day.

“The oil infrastructure appears to have been damaged following bombings around Es Sider and Ras Lanuf in recent days, heralding a worrying escalation from an oil sector perspective. It stands ready to act if the disruption of supplies proves acute and ongoing, and if suitable replacement oil supplies cannot be made readily available by other producers” the IEA said in a statement on its website.

The agency continued to monitor the situation on a close and constant basis, ahead of a seasonal uptick in crude oil and transport fuels demand expected from April.

Oil Supply Impact on Europe

“This disruption is starting to have an impact, especially on European countries. February and March is a high maintenance season, so there’s not much demand. Maybe, after March there’ll be more need.” said IEA Executive Director Nobuo Tanaka.

The IEA chief said financial speculation was partly to blame for sharp oil price movements, and warned that if the price of a barrel of crude oil keeps hovering at its current level for long enough, global economic growth could suffer.

With oil already topping the $100 per barrel mark as political instability in the Middle East adds to upwards pressure from rising commodity prices, the worldwide “oil burden” is set to hit 4.7 per cent of total economic output this year, up from 4.1 per cent in 2010.

“The combination of higher prices, emerging inflationary pressures and instability in the Middle East is not a healthy one.” the IEA’s monthly oil report, published yesterday, said.

“Under current assumptions for global GDP, oil price and oil demand, the global oil burden could rise to 4.7 per cent in 2011, getting close to levels that have coincided in the past with a marked economic slowdown.”

The IEA also increased its forecast of global demand for oil in 2011 to 89.3 million barrels per day, its fifth increase in as many months, as economic growth recovers, particularly in emerging economies such as China.

OPEC and Oil Output in 2011

Separately, OPEC also raised its global demand growth estimate, citing economic growth and cold weather.

But with political tensions in Egypt roiling global crude markets, OPEC members countries are unwilling to boost oil output until bulging global inventories are reduced, a tough stance that will provide little relief from oil prices that have hit two year highs.

Brent Oil Futures – Closing Price

Brent crude oil futures for March 2011 delivery ended the week’s trading session at $99.31 a barrel on the ICE Futures Exchange, which is $1.68 higher than Brent’s close last week at $97.63.

OPEC Defending Global Oil Supplies

OPEC’s Secretary General Abdullah Al-Badri reiterated that oil prices nearing $100 were not caused by a shortage of oil, but OPEC member countries will not step up oil output levels for now, saying that he was 100 percent sure there was no shortage in the oil market.

Badri said the near record spread between WTI oil futures and Europe’s Brent showed that oil futures had become disconnected from the physical market, blaming cold weather and trader buying for price gains.

OPEC’s offical line remains the same, that there’s more than enough supply in the market, and that higher oil prices alone are not going to force them into action.

“I’m sure 100 percent when looking at the markets there is no shortage in the market, there is plenty of oil in the market. If you have a floating and commercial stocks for 60 days and we at OPEC are producing 29.3 million barrels per day, how are you telling me there is a shortage? When OPEC sees an imbalance in the market, OPEC will act to balance the market.” Badri said.

Unrest in Egypt Affecting Prices

Oil prices traded higher again on Friday came as traders bought back into crude after unprecedented unrest in Egypt.

Although the Arab country is a small oil producer, traders were worried because it is an important gateway for Middle East oil through the Suez Canal and the 200 mile long Sumed pipeline, which connects the Red Sea and the Mediterranean.

Investors and oil traders are also concerned that political protests could spread to other Middle East countries that are more important to global oil markets such as Saudi Arabia. The spike in oil prices towards $100 has raised concerns about its impact in global economic growth and inflation.

“It looks like there is a lot of worry in the market about a possible closure of the Suez Canal because of the escalating tensions in Egypt. That makes perfect sense about the rally we’re seeing in the crude market.” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston.

Meanwhile, the IEA has asked OPEC to boost oil output, stating that high oil prices are a “detriment to the world economic recovery”, commented Nobuo Tanaka, the IEA’s executive director, in an interview on Friday in Davos, Switzerland.

Latest Brent Oil Price

In London, Brent crude oil futures for March 2011 delivery was trading at $97.65 a barrel, 06.00 GMT this morning on the ICE Futures Exchange.

High Oil Prices = Bad News

According to the IEA, oil prices at about $100 a barrel is bad news for any meaningful economic recovery in the west.

“If we assume that oil prices remain around $100 in 2011, the import bill to GDP in the US will be 2.6%, very close to the level we saw in 2008 of 2.8%. In Europe, it would be 2.2%, exactly what we had in the year 2008. High oil prices are not just bad news for oil consuming countries but also oil producing countries.” said Fatih Birol, the chief economist of the IEA.

OPEC Oil Output Maxed Out?

OPEC commented on Monday in its monthly report that it’s own member countries would need more of its own crude oil this year than originally thought. This comment adds weight to the fact that world oil demand is clearly higher than current crude oil output.

“If oil prices go up, we may not see a correction in terms of oil demand response. Energy efficiency measures in industrialised countries mean there are now limited options for alternatives compared with the 1970′s.” Birol added.