One of the biggest clouds over the oil market at the moment is the possibility of an economic recession in the US and what impact this could have on demand in the world's biggest consumer (and elsewhere).

When it comes to demand, the International Energy Agency's estimates of what the future may hold are as widely watched as anybody's, yet its latest monthly report released Wednesday offered little insight.

The IEA did cut its forecast of growth in demand this year by 130,000 b/d, but this was mainly a result of raising the estimate for last year, rather than a more pessimistic view of the outlook for 2008.

On the big question of the US economy, the agency said it would bide its time before making any big judgements. It noted that many observers of the subprime crisis and its impact on the wider US economy had become more pessimistic in recent weeks, but chose to wait for new reports from the IMF and OECD before making any possible revisions to expected oil demand.

With the demand question on hold, some of the attention on the IEA report turned to stocks as it reported the first initial indications of the complete picture for the fourth quarter.

Based on preliminary data for December, the IEA said it thought oil stocks across the OECD had fallen by an average of 1.1 million b/d during the quarter. Although stocks normally fall as demand picks up in the fourth quarter of the year, the size of the decline is substantially bigger than the ten-year average for the same period of closer to 700,000 b/d and reflected what the IEA said were tighter market fundamentals.

With oil prices now having fallen by around $10/barrel from their peak earlier this month, some of that tightness may seem to have eased. It is worth noting, though, that the 'call' on OPEC for the first quarter of this year remains above the cartel's current production levels. In other words, if the IEA's predictions for oil demand and non-OPEC supply prove to be accurate, then oil stocks will fall again in the coming weeks unless OPEC opens the taps.

Posted by Richard Swann on January 16, 2008 07:56 PM | Permalink