Oil market downturn deepens in May: IEA

PARIS: The IEA said yesterday that the euro zone debt crisis, a Chinese slowdown and increased supplies combined to depress oil prices in May but energy costs remain historically high and crimp growth.
The fall "accelerated in May in the wake of the deepening euro zone crisis, mounting concern over a slowdown in Chinese growth and rising global oil supplies," the IEA said in its latest monthly report. At the same time, however, "prices remain very high in historical terms and are acting as a drag on household and government budgets," it cautioned.
Oil prices hit six-month low points in May, with Brent crude — the European benchmark — below $100 for the first time for 15 months, it noted.
In early trading on Wednesday, New York's main contract, light sweet crude for delivery in July, eased 30 cents to $83.02 while Brent North Sea crude for July shed 12 cents to $97.02 a barrel.
"Resurgent worries over the euro zone crisis ... (and a) precarious macroeconomic outlook heightened risk aversion in global financial and commodity markets and triggered a massive liquidation" of investor positions," the IEA said.
Policymakers are focused on managing the crisis in Greece and Spain, it said, and the European Central Bank and the US Federal Reserve were notably reluctant to adopt more stimulus measures, undercutting sentiment, it added.
The International Energy Agency, set up to advise developed countries on energy policy, said it was possible that lower demand could lead to lower prices which would then bolster growth but the uncertain outlook required it to be cautious, with risks to the downside.
Accordingly, the IEA cut its 2012 global demand forecast to 89.9 million barrels per day (mbpd) from the 90 mbpd given in its previous report, and compared with global supply in May of 91.1 mbpd, up by 0.2 mbpd.
Compared with May 2011, global supply was up 4.2 mbpd, 70 percent of which was accounted for by OPEC producers who are expected to keep output unchanged at a regular monthly meeting in Vienna on Thursday given current price levels.
The IEA put OPEC May output at 31.87 mbpd, slightly lower than in April but still above the organization's nominal target of 30 mbpd.
Saudia Arabia would be able to maintain output at around 10 mbpd in coming months, meaning it could cover any increased demand as Iranian output is cut by Western sanctions imposed over its contested nuclear program.
Iran produced 3.3 mbpd in May, however, the IEA noted, showing little impact so far from the increasingly tough Western sanctions which Tehran has at least offset in part by offering customers easier payment terms.
The sanctions, however, should ultimately cut output by about 1.0 mbpd in the second half of the year as storage facilities are filled, forcing Iran to cut back output unless it can find other outlets, the report said.
The IEA said concerns over Iran have eased, with the market more confident that it can cope with reduced supply in view of increased output elsewhere and the recent fall in prices, which now appear to be near bottom.
Libya produced 1.42 mbpd in May, up by 20,000 barrels, as the country continued to recover production lost last year in the uprising.
Countries outside the Organization of Petroleum Producing Countries produced 53.1 mbpd in May, up 0.2 mbpd from April and up 1.0 mbpd from a year earlier but stoppages will see the 2012 gain trimmed back to 660,000 bpd, the IEA said.