World needs more OPEC oil, says IEA

Oil stocks in industrialised nations may be headed for their biggest fall in more than 10 years as OPEC production cuts bite, the International Energy Agency said on Tuesday, building a case for more OPEC oil.

OPEC ministers have begun arriving in Vienna for a meeting on Thursday to determine output, with most indicating they expect the cartel to decide to hold production steady.

At its last two meetings the group that pumps over a third of the world's oil agreed to curb supplies by 1.7 million barrels per day, roughly six per cent.

"In reality, stock trends and prices are signalling that higher OPEC exports will be needed in the months ahead," wrote the IEA, adviser to 26 industrialised nations.

The IEA took a swipe at governments in Venezuela, Russia and other countries that have embraced "resource nationalism" by wresting control of oilfields from foreign companies. Greater state control of energy resources and the temptation to siphon off revenues threaten to choke investment, the IEA said.

"Often political and social spending needs grow to the point where oil exploration and development investment is compromised, which can in turn reduce oil and gas exports," the agency said.

Venezuelan President Hugo Chavez has poured billions of dollars of oil revenues into social spending.

The IEA has also repeatedly criticised Russian gas giant Gazprom for failing to invest enough of its profits in maintaining pipelines and fields.

Tighter OPEC supplies and a February cold snap in top energy consumer the United States have contributed to a steep decline in oil stocks in industrialised nations, and a recovery in the oil price from below $50 in January, the IEA said.

At above $59 a barrel, oil is well off its $78.40 record high of last July, but is still three times the price seen at the start of 2002 when Chinese demand kicked in.

"Preliminary data suggest that OECD stocks have fallen by over 1.26 million bpd over the first two months of the year, and could be heading for the largest first quarter stock draw for over 10 years," the IEA said in its report.

Lawrence Eagles, head of the IEA's oil and industry markets division, noted crude oil stocks normally build during the second quarter which falls between winter demand for heating fuel and summer demand for gasoline and air conditioning.

"This leaves the potential for a much tighter situation at the end of the second quarter," he told Reuters.

BNP Paribas analyst Harry Tchilinguirian cautioned against reading too much into "notoriously fickle" preliminary numbers.

"Crude oil inventories in Europe are among these and Europe does not have the equivalent of the U.S. weekly data," he said.

The IEA kept its 2007 world oil demand forecast steady at 86 million bpd, up 1.8% on 2006.

It estimated oil supplies from the 10 OPEC members bound by output restrictions fell to 26.76 million bpd in February, down 365,000 bpd from January and down one million bpd since September, shortly before OPEC's agreement to cut.

All OPEC - including Iraq and new member Angola, neither country subject to output restriction - pumped 30.2 million bpd in February, down 125,000 bpd from January.

The IEA put demand for OPEC oil in the range 30.7 million bpd to 31.6 million bpd in 2007.

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