The IEA slashed its forecast for oil demand in 2011 and 2012 on Tuesday, just one day after OPEC did the same. The International Energy Agency cited the deteriorating global economy as the reason for declining demand, but warned that prices are unlikely to decline as the resumption of Libyan oil production continues to face challenges, tightening global supply.
Investing Insights: Oil ETFs: The Top 10 Exchange Traded Funds for Your Oil Investing List
The IEA cut its oil demand estimate by 0.2 million barrels a day in 2011 and by 0.4 million barrels a day for 2012, but still predicted that demand would exceed supply, though only slightly. “Things are balanced to tight,” which explains why international oil prices have remained so high despite declining demand, said David Fyfe, head of the Oil Industry and Markets Division at the IEA.
An important export terminal in Libya, damaged during the country’s unrest, is one of the major roadblocks to getting supply levels up. Foreign oil companies are also likely to keep their distance until the country is more secure. The IEA expects Libya to be producing between 350,000 and 400,000 barrels of oil a day by the end of the year, and 1.1 million barrels by the end of 2012, but it could take a few years for Libyan production to reach 1.6 million barrels a day, its level before the war began in February, when Libyan production effectively ceased.
While the IEA agrees with OPEC that demand will decline, the two differ on the speed of Libya’s comeback, with OPEC reporting Monday that the country would reach 1 million barrels a day within six months. While the IEA says most damage to oil production infrastructure was light, Libya’s main oil export terminal, Ras Lanuf, appears to have suffered significant damage and could take months to repair. Until it is fixed, the IEA says exports will be capped at the capacity of the Tobruk terminal, which only exports 50,000 to 60,000 barrels a day. Furthermore, today the Ras Lanuf oil terminal was attacked by Gadhafi loyalists, demonstrating that the country is not yet secure enough to resume normal operations.