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Oil Demand Will Grow, Despite Prices, Report Says

Oil Demand Will Grow, Despite Prices, Report Says

Published: July 2, 2008

HOUSTON — World demand for oil should continue to climb, despite the doubling of oil prices and weakening economic growth, according to a report released Tuesday by the International Energy Agency.

Eugene Hoshiko/Associated Press

Moped and motorcycle riders waited at a Shanghai gas station Tuesday. China will account for a third of the increase in oil demand over the next five years, the International Energy Agency said.

That should mean tightening supplies, decreasing the odds that drivers will get much relief at the gasoline pump.

The Paris-based agency, which advises governments of the industrialized countries, predicted that oil consumption would decline slightly in the United States and other developed countries over the next couple of years. Americans, the report said, are beginning to drive more fuel-efficient vehicles and taking mass transit when it is available.

But the small decline in oil demand in the industrialized countries will be more than offset by an estimated increase in demand of 3.7 percent a year from 2008 to 2013 in developing countries, particularly in Asia, the Middle East and Latin America.

“The report is only further confirmation of the inability of global supply to catch up with rising demands,” said Chris Ruppel, an energy analyst at Execution, an institutional brokerage firm. “After five years of record increases in oil prices, producers are still unable to sufficiently expand output. It means we are in for rough times.”

The report said energy consumption was increasing in developing countries because of increased trade, growing internal markets and strong commodity prices. But subsidies that typically shield gasoline consumers in developing countries, the report said, are also important in sustaining strong demand, particularly in oil-producing countries.

By 2013, oil demand in developing countries will account for nearly 49 percent of total global demand, the report said, compared with 36 percent as recently as 1996.

Demand will rise the most in China, as it has since 2004. “China will account for almost a third of the world’s annual demand increase in the 2008-2013 period,” the report said. That projection is based on International Monetary Fund predictions of double-digit annual economic growth rates in China for the foreseeable future.

The global picture for oil production is little better. High prices have stimulated exploration and field development, but the agency projects an increase in annual global production capacity of 1.5 million to 2.5 million barrels a day by 2010 from current levels, or roughly twice the current production in the Gulf of Mexico. After that, the agency expects annual growth below one million barrels a day from 2011 to 2013.

Those modest increases result from project delays and exploding costs for many oil field projects around the world, declining production in major fields in Mexico and the North Sea, and political turbulence in Nigeria and other producing countries.

There are some bright spots for supplies; at least 250 major new field or field expansion projects are expected to begin production in the next few years in non-OPEC countries alone. Spare capacity in OPEC countries is projected to rise from 2.5 million barrels a day in 2008 to more than 4 million barrels a day in 2010, although that will still be less than 5 percent of global demand. Production growth is robust in Brazil, Kazakhstan, Azerbaijan and Iraq.

But the agency predicted that the tight markets would keep prices high. And it discounted the impact of speculation, which has been blamed by many politicians in the United States recently for the spike in prices.

“Blaming speculation is an easy solution which avoids taking the necessary steps to improve supply-side access and investment or to implement measures to improve energy efficiency,” the report said.

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