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. Last Updated: 07/27/2016

Surprise Surge in Global Oil Demand

LONDON -- Oil demand this year is rising faster than expected as a surging Chinese economy begins to spur growth in surrounding nations, the International Energy Agency said Wednesday.

The Paris-based group, which advises 26 nations on energy policy, boosted its estimate of the rise in oil use this year by 220,000 barrels per day to 1.4 million. Consumption will total 79.9 million barrels per day, the agency said in a monthly report.

Increasing demand will bolster prices as the Organization of Petroleum Exporting Countries begins to cut supplies. The group at a meeting yesterday unexpectedly agreed to cut output by a total of 2.5 million barrels per day, or almost 10 percent, during the second quarter of the year from current levels.

"Crude oil prices remain strong," bolstered by lower-than-normal inventories, sabotage in Iraq, winter weather and rising natural gas prices, the IEA said in its report.

Oil inventories in the 30 nations of the Organization for Economic Cooperation and Development are falling, leaving consumers vulnerable, the IEA has said. Stockpiles fell further in December, losing 1.26 million barrels per day, to 2.52 billion. The total is up 56 million from a year earlier.

Inventories in the industrialized world equaled 51 days of demand, the IEA said, lower than normal. The supply should rise in the months ahead because of a seasonal slowdown in consumption, the IEA said.

Inventories are falling as world oil consumption rises faster than expected this year, with an economic expansion gathering pace and demand surging in China, the second-largest consumer after the United States.

The IEA has lifted the forecast for 2004 demand growth in each of the last four reports, from October's projection of 1.06 million barrels.

Rising sales to China, the war in Iraq and a strike in Venezuela helped OPEC defy predictions of declining prices last year and allowed members to flout their output quotas.

OPEC, supplier of a third of the world's oil, surprised traders Tuesday with its second agreement to cut output in less than five months. Quotas will decline to 23.5 million barrels per day on April 1, 1 million lower than now.

But Libya's delegate to OPEC and the cartel's head of research said Wednesday that the group may backtrack on Tuesday's decision to cut supplies because of increasing demand and prices, Libya's delegate and the group's head of research said Wednesday.

OPEC surprised oil traders with the agreement in Algiers to lower output by 1.5 million barrels per day as of March 1 and cut quotas by another 1 million on April 1, eliminating almost 10 percent of the group's production. Oil prices in 2003 in New York recorded their highest average in two decades, at $31 per barrel, and are rising even more this year.

The New York Mercantile Exchange average is $34.02 so far in 2004. OPEC's benchmark has averaged $29.84 this year, above the formal target of $22 to $28 per barrel.

Oil is priced in dollars, and over the past year the dollar has lost 18 percent of its value against the euro. Several OPEC ministers cited the decline in the purchasing power of their oil revenue when Tuesday's reduction was announced.

Libya's OPEC delegate, Abdulhasid Mahmoud Zlitni, said he expected that the reduction planned for April would likely be the group's last for the year.

"Demand is good,'' he said. "All the forecasts indicate high growth in China and the U.S.''

The 10 OPEC nations outside of Iraq who agree to quotas produced 25.8 million barrels per day in January, 1.3 million more than targeted, the IEA said. Iraqi production increased by 70,000 to 2 million barrels per day last month, the IEA said.

Rising non-OPEC production, led by Russia, helped counter a 145,000-barrel-per-day OPEC decline last month, leaving the global total at 82.1 million barrels, the report said.

Because of rising consumption and cuts in non-OPEC supply, the agency raised its estimate of the need for OPEC oil in 2004. Demand, known as the call on OPEC, will average 25.5 million barrels per day, 400,000 more than expected a month ago.

The second-quarter figure is expected to be 23.7 million barrels per day, the agency said.

Supply from non-OPEC nations will average 50.3 million barrels per day this year, representing growth of 1.5 million per day from 2003, the report said.

The total was reduced 100,000 barrels per day from the projection made last month.

Demand for OPEC's oil during 2004 will decline by 500,000 barrels from last year to average 25.5 million barrels per day, the report said.

(Bloomberg, AP)