By Jennifer Tan
It does not make sense for OPEC to add to bulging stockpiles, IEA official says.
Oil demand in wealthy countries has not improved much and the patchy state of global recovery could prompt OPEC to keep output steady at its next meeting, the International Energy Agency (IEA) said on Tuesday.
High distillate stocks in the Organisation for Economic Cooperation and Development, the group of 30 rich nations, underscored the sluggish rebound in those economies, since diesel is a key indicator of industrial activity, IEA executive director Nobuo Tanaka said. "We are concerned that economic recovery expectations are very high. While that is true in China and India, in OECD countries like Europe and Japan, we have not seen much of an actual recovery in oil demand," Tanaka told Reuters on the sidelines of an energy conference in the city-state.
As a result, the high oil and fuel stockpiles could stay OPEC's hand, he added. "OECD inventories are very high, and OPEC's concern is the global economic recovery, so if the economies recover in a robust manner, they will have to produce more. If not, just simply adding to the stock levels does not make any sense."
The Organization of the Petroleum Exporting Countries will meet in Luanda, Angola on Dec. 22 to decide on its production policy, with most members saying so far that it was too early to decide on any changes, as stockpiles remain high, though prices have risen close to $80 a barrel. The producer group has kept official production targets unchanged at meetings this year, after it agreed to curb output by 4.2 million barrels per day (bpd) last year.
Kuwait's oil minister Sheikh Ahmad al-Abdullah al-Sabah said on Tuesday he expected OPEC to keep production targets unchanged at its December meet, but would like to see better compliance from members.
Ship brokers ICAP said oil products now stored in floating vessels globally have risen to 90.3 million barrels, up nearly 15 million barrels from an earlier estimate at end-October, and might rise by another 6.5 million barrels by year-end. Oil has risen to $78.70 on Tuesday from a low of less than $33 in December, though it is still about 47 percent below a high of more than $147 hit in July last year. One reason for oil's climb is the soft U.S. dollar, which on Tuesday held near 15-month lows against a currency basket.
Tanaka said the weakening dollar was "certainly one element of higher oil prices", but declined to comment if $80 a barrel was too high. "It all depends on the level of economic growth. What is a comfortable level is very difficult to say. But if prices rise too high, too fast, it could undermine the economic recovery."
When asked if oil should be priced off a basket of currencies or even the euro, instead of the dollar, to provide more stability, Tanaka said: "The most reliable and liquid currency is still the greenback. Moving away from the dollar may not necessarily be the final solution."
On the issue of global supplies, Tanaka said existing oilfields are close to hitting a supply peak, and offseting these decline rates would require massive investments, although underground resources remain ample. "Peak oil exists for current fields in production, and decline rates will get worse through to 2030. But underground, unconventional sources like shale, oil sands are sufficient, if you pump in enough money. It all depends on the price," he said. He dismissed suggestions by a report in UK newspaper The Guardian last week, citing a whistleblower at the IEA, that the agency was deliberately underplaying a looming oil shortage.
"That article says we are too complacent. That's not true. In fact, we have been quite alarmist about the necessity of putting huge investments into potential, new fields."