London (Platts)--25Jun2007

The world needs more oil if another price surge is to be averted, the
Centre for Global Energy Studies said Monday, disagreeing with the OPEC oil
cartel's insistence that global crude supply is sufficient to meet demand.
     Crude prices look set to record an increase of nearly $11/barrel between
the first and second quarters of this year--the biggest quarterly increase
this decade, which "would seem to suggest that the world is short of oil and
ought to be providing a clear signal to OPEC that its members need to put more
oil into the market," the CGES said.
     The CGES noted that OPEC supports its stance by highlighting refining
bottlenecks, particularly in the US, and geopolitical tensions in the Middle
East and Nigeria as the driving forces behind the latest price surge. It
acknowledged that US crude stocks, at nine-year highs in mid-June, and
refinery utilization figures averaging 88% since the beginning of this year
appeared to support OPEC's interpretation.
     "However, the US is only the most visible part of the global oil system
and the situation elsewhere paints a very different picture," the CGES said,
noting that while technical problems had kept US refinery runs low, global
throughputs were up on last year following increases in China, India and
Russia.
     Global oil inventories, it added, are likely to show only modest growth
in the second quarter of this year, "a quarter when stocks would usually be
expected to increase by around 1 million b/d, while a continuation of OPEC's
current output level into the third quarter would lead to a global stock draw
of around 140,000 b/d during the second 'stock-building' quarter of the year."
     Rising geopolitical tension should act as a signal for increasing
production rather than as "an excuse for inaction," the CGES said, adding that
refiners preferred to hold higher stocks to offset the risks of future supply
disruption.
     "OPEC counters that it can make additional supplies available in the
event of a disruption, but the overall time lags in a supply chain that
involves taking and implementing a decision to raise output, positioning
vessels to load and deliver the additional oil to market, moving that oil to
refineries, processing it and delivering the product to consumers, can amount
to as much as 12 weeks, whereas prices react immediately," the CGES said.
     Furthermore, the CGES said, the US has not solved its gasoline supply
problems and will be even more reliant on imports in the coming months. Asian
refinery runs are set to rise over the summer as plants come out of
turnaround, US refiners will also be seeking to boost throughputs and European
throughputs will remain high to supply the US market, it said.
     "Global oil supply is little changed from last year, whereas refinery
runs are up by nearly 1 million b/d," the CGES said.
     OPEC and the European Union agreed after top level talks in Vienna
last Thursday that there was no current shortage of crude oil. OPEC secretary
general Abdalla el-Badri said he saw no need to add more crude oil to a market
characterized by tight refining capacity and a seasonal shortage of gasoline.
     Andris Piebalgs, European Commissioner for Energy, agreed with OPEC's
assessment of the market, saying there was "a quite comfortable margin of
spare capacity" and that stocks were high. "At this stage, I don't see a
shortage in the market," he said.
     "But we also see that there are factors that could make a real impact on
supply, that could make an impact on the market such as the strike in Nigeria.
We should be vigilant. If there is a situation where for whatever reason there
is disruption of supply, there should be a mechanism of an increase of supply
to the market," Piebalgs said.
     A joint statement issued after the talks said the EU had "expressed its
concern about expected seasonal increase in demand coupled with possible
supply disruptions over the next few months which could lead to tightening in
the oil market."