High oil prices causing demand weakness in Southeast Asia: IEA

The International Energy Agency Tuesday slashed its estimate of world oil demand growth in 2006 by 300,000 b/d, saying there was clear evidence that high prices were eroding demand for oil in Southeast Asia. In its latest monthly oil market report, the Paris-based IEA also cut its forecast for non-OPEC supply this year, leaving the 'call' on OPEC crude and stocks unchanged from last year at 29 million b/d.

The IEA now expects world oil demand to average 84.74 million b/d in 2006, down from its previous projection of 85.08 million b/d. This would mark a 1.49 million b/d year-on-year increase, well above last year's growth in demand of 1.02 million b/d but down sharply from the agency's previous estimate for this year of 1.79 million b/d. China and North America are expected to drive the increased consumption this year, but countering this is evidence of demand weakness in Southeast Asia, the IEA report said. "It is becoming increasingly clear that Southeast Asia, which had been one of the key engines of global oil demand growth, is feeling the effects of high oil prices," the report said.

The IEA noted reports that oil demand in Indonesia could fall by as much as 20% this year due to sharp rises in retail product prices. Thailand and the Philippines have also seen demand fall in recent months, the IEA said. The IEA has not changed its expectations for China, where oil demand is expected to grow to 6.98 million b/d in 2006, up from 6.59 million b/d last year. This would imply year-on-year growth in Chinese demand this year of 390,000 b/d, more than double the rate of 150,000 b/d seen in 2005. On the supply side, the IEA now expects non-OPEC oil production to average 51.3 million b/d in 2006, 200,000 b/d less than previously expected. The reduction is due to a large cut of 500,000 b/d for the average in the first quarter of the year on the back of a number of unscheduled outages in the US Gulf of Mexico, the former Soviet Union, Canada, Norway and elsewhere. Non-OPEC supply is now expected to grow by 1.2 million b/d, or 2.4%, this year, down from a previous forecast of 1.3 million b/d. African countries are expected to contribute 465,000 b/d, or 40% of the total. Output from the largest non-OPEC producer Russia, which has grown rapidly in recent years, is expected to rise by close to 3% to average 9.77 million b/d this year. This leaves the 'call' on OPEC crude and stocks at 29 million b/d for 2006, the same as last year's estimated level and below the cartel's current production levels, the IEA said. At a meeting in Vienna last week, OPEC agreed to leave current output unchanged for the time being. The IEA said that if demand growth and geopolitical uncertainty continued to support oil prices through June, "a rising seasonal demand profile from then onwards could mitigate against further official output cuts."

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