The world oil market risks being tighter later this year if OPEC is inflexible over production, the International Energy Agency warned on Tuesday, sharply raising its estimate for world oil demand in 2007.
The IEA pointed to unexpectedly strong demand in big emerging economies, a sharp fall of world supply in May and another crimping of supply in June because of routine maintenance on infrastructure outside the OPEC zone.
It raised its forecast for the growth of daily demand from figures estimated a month ago by 420,000 barrels per day to 1.7 million barrels a day.
"It seems difficult to escape the conclusion that the oil market will be tight in the second half of the year," the agency said in its monthly oil market report in which it increased its forecast for global oil demand by about 400,000 barrels a day to 86.1 million barrels."
The report explained: "While the US gasoline market remains tight, stocks have begun to rebuild, and high crude stocks in parts of the US require heavy discounts to clear the spot market.
"But the stock situation can change rapidly, and here is where our concern lies," it said.
Although refinery constraints were attracting investment, shortages of skilled labour, capacity and equipment were slowing progress.
"In the meantime we have an oil system which needs every inch of flexibility to deliver the products we need.
"Constraining that flexibility by restricting supply or reducing stocks, risks provoking a price increase that would be detrimental to both producers and consumers alike," the IEA said.
The IEA has been at odds with OPEC over the need to pump more crude.
Late in May Saudi Arabia's assistant oil minister said there was no need for additional crude supplies.
World oil prices were stable despite the IEA prediction for global crude demand.
Brent North Sea crude for July delivery lost 13 cents to 69.43 dollars per barrel in electronic trading.
New York's main oil futures contract, light sweet crude for delivery in July, added just three cents to 66.00 dollars per barrel in electronic deals before the official open of the US market.
The price of dated Brent rose above 70 dollars per barrel in late May as markets tightened on stronger demand, lower supply, ongoing downstream tightness and early summer storms.
However, economic concerns, weaker commodities and the passing of Cyclone Gonu saw prices dip as the IEA report went to press.
Market attention has focused on a shortage of gasoline supplies in the United States ahead of the summer driving season where demand usually peaks as most Americans take to the roads for their vacations.
However the IEA put the onus on OPEC.
"While it is clear that much of the recent rise in crude prices has been caused by US gasoline tightness, there is a portion which is related to tighter OPEC supply," the IEA said.
"Hopes for a moderation in crude prices in the short term therefore lie both with OPEC and the US gasoline market," it said.
The agency said global oil demand will increase by two percent this year. Last month the agency had reduced its forecast figure for global demand for oil in 2007 by 0.1 million barrels per day from its estimate in April, to 85.7 million barrels owing to mild weather in the northern hemisphere and a slightly lower forecast for demand in China.
But it warned that oil prices could climb this year because supplies might tighten.
It also said that world supply in May fell by 565,000 barrels a day to 84.9 million barrels, as seasonal refinery outages in OECD countries added to a dip in OPEC crude supply.
It warned that non-OPEC supply could fall further by up to 485,000 barrels a day owing to summer maintenance in the northern hemisphere.
The agency said that the increase in demand was the result in part of a big adjustment of previous data.
It also highlighted unexpectedly strong figures from leading countries outside the group of 30 industrialised nations in the organisation for Economic Cooperation and Development.
The IEA's monthly report on state of the oil market referred to "growth reappraisal in 2006 for various big non-OECD countries in light of new data."
The IEA said outages in Nigeria, which has been hit by a series of hostage takings and unrest, had cut OPEC crude supply by 425,000 barrels per day to 30.1 million barrels.
It said that oil product demand in the OECD remains unchanged for both 2006 and 2007, while non-OECD product demand has been adjusted upwards by some 250,000 in 2006 and 400,000 barrels a day in 2007.
China's apparent demand has been adjusted slightly downwards and is now expected to increase by 6.1 percent in 2007 to roughly 7.6 million barrels a day.
The Middle East is also facing the challenge of meeting rapidly expanding power demand, which is being fuelled by strong economic growth, it said.
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