World oil supply will rise more slowly than expected by 2013, leaving little spare capacity on the market despite weaker demand growth, the International Energy Agency (IEA) said on Tuesday.
In its Medium-Term Oil Market Report, the adviser to 27 industrialised countries said global supply capacity will reach 95.33 million barrels per day (bpd) by 2012, some 2.7 milliob bpd less than its previous forecast a year ago.
The outlook signals little relief from high oil prices, which have hit record peaks above $140 a barrel on supply concerns and robust demand in Asia and the Middle East, adding a strain to the world economy.
"Structural demand growth in developing countries and ongoing supply constraints continue to paint a tight market picture over the medium term," the Paris-based IEA said.
High prices and slower economic growth are expected to weigh on world demand, although it is forecast to expand faster on average than additions to global supply in the next five years.
Emerging markets are likely to remain the driver of demand. Some 90 percent of the growth is expected to come from Asia, South America and the Middle East, reflecting rising wealth and growing populations.
Consumption will rise by an average 1.6 percent a year between 2008 and 2013, or 1.5 million bpd on average, the IEA said, down from a previous medium term forecast of 2.2 percent.
Annual supply growth will match or exceed average demand growth through 2010 but slow to less than 1 million bpd from 2011 to 2013. Average total supply growth in the period stands at 1.15 million bpd a year.
Oil extended an earlier gain after the IEA report was released. U.S. crude for August was up $2.36 a barrel at $142.36 as of 1156 GMT.
The agency expressed concern about high prices, which it says are the result of strong demand and supply bottlenecks rather than speculation, a factor blamed by Saudi Arabia and other oil exporters.
"Record prices in the oil market in recent months have become a threat to the global economy and social welfare of millions of people," said IEA Executive Director Nobuo Tanaka at the World Petroleum Congress in Madrid.
"Some are calling it the third oil shock."
Analysts said the report would support prices for delivery in future years, which have been rising sharply in recent months on concern a supply crunch may be looming. The IEA itself said a year ago that was a risk by 2012.
"The report is only going to bolster people's perceptions five years out of the gap between supply coming on and what demand is expected to be, reinforcing long-dated prices," said Harry Tchilinguirian of BNP Paribas.
"Issues regarding future supply availability are clearly going to remain on people's minds."
Accelerated declines at mature oilfields and long delays and cost overruns at new projects account for the lower supply growth forecast.
Output in 2012 from outside OPEC, source of about three in every five barrels, is now expected to be 1.4 million bpd less than previously thought.
Supply will rise to 51.1 million bpd in 2013 from 49.9 million bpd in 2008, the IEA said. Output of non-OPEC crude alone will remain flat or fall in the next five years.
Production capacity in OPEC countries, also facing cost overruns and delays at new projects, is also expected to lag earlier expectations.
OPEC usually holds part of its output capacity in reserve to make up for supply breaks or to meet unexpected rises in demand. That margin is expected to wane by the end of the period.
The group's effective unused production will rise from 2.5 million bpd in 2008 to more than 4 million bpd in 2009, before declining again in 2013 to about 1 million bpd, the IEA said.
"Spare capacity is likely to dwindle to minimal levels by 2013 in the absence of accelerated supply-side investment or further efforts to stem demand growth," it said. (Reuters)
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