IEA Says Global Oil Demand Growth Maintained Despite High Prices

The IEA also said output constraints in Nigeria and Iraq had deflated OPEC's spare capacity to only 1.9 million barrels per day (bpd).  Supply disruptions to the 85 million bpd world market have driven oil to historically high levels near $70, leading some to suggest that record prices will cut demand expansion.  "Strong economic growth is an important counterbalance, but on the whole we're seeing evidence of high price effects coming through," said Lawrence Eagles, head of the IEA's oil industry and markets division.

The IEA trimmed 2006 global oil demand growth by 10,000 barrels per day to 1.24 million bpd, with the United States seen as the clearest case for lower consumption.  Projected U.S. demand growth of 0.9 percent for this year was well below what might be typically expected, given forecast economic growth of up to 4 percent, the IEA said.  "High oil product retail prices and comparatively low natural gas prices will act as a drag on demand through the end of the year," it said.

China offered a more positive outlook. It was expected to post growth in demand of 8.6 percent before slowing to a still robust 5.9 percent during the second half of 2006, said the IEA.  Higher retail fuel prices were likely to encourage refiners in China to increase processing rates in the near term, boosting apparent demand growth.  But the rebound in consumption was expected to be temporary, with the higher prices having a dampening effect later. 

OPEC countries were pumping as much as possible to meet robust demand but its spare capacity was limited to 1.9 million bpd because of a combined outage of 800,000 bpd from members Iraq and Nigeria.  Militant attacks have shut in just over 500,000 bpd in Nigeria and Iraq's oil sector is struggling to recover from decades of underinvestment, wars and sanctions.  In addition, the IEA said heavy, hard-to-refine crude on offer from Iran, Kuwait and Saudi Arabia was largely unwanted with producers unwilling to offer steep discounts.  "Both these constraints on supply suggest that effective spare capacity could remain thin for some time to come," it said.