* IEA cuts demand growth outlook due to sluggish economy
* Pressure on OPEC to produce more easing
* Iraq, North America to increase oil production steeply
(Adds trader comment)
By Dmitry Zhdannikov and Christopher Johnson
LONDON, Oct 12 The world could see a gradual
easing of oil prices over the next five years due to sluggish
economic growth and rising energy efficiency and as production
increases steeply in Iraq and North America, the West's energy
watchdog said on Friday.
The International Energy Agency, which advises
industrialised nations on energy policy, cut its global oil
demand growth projection for 2011-2016 by 500,000 barrels per
day (bpd) compared to its previous report in December 2011.
As a result, the pressure on OPEC to produce more oil will
ease dramatically and the cartel will have to cut production to
no more than 31 million bpd until 2017 to balance global demand.
It has been producing between 31 and 32 million bpd this year.
"Expectations of economic growth through the forecast period
have been reduced amid persistent OECD debt concerns, especially
in the euro zone. Even China, the main engine of demand growth
in the last decade, is showing signs of slowing down," the IEA
said in its Medium-Term Oil Market Report. "Readings suggest a
gradual easing of prices over the forecast period."
London Brent crude prices fell after the IEA report, trading
down more than a dollar a barrel, below $115 at 0930 GMT
"Crude oil prices reversed from yesterday's gains amid
concerns over global oil demand growth," said Myrto Sokou, a
senior research analyst at Sucden Financial. "The bearish IEA
figures set the tone for the day so we can expect further
declines for today's session."
In its previous report in December 2011, the IEA said it
expected global oil demand to rise by around 8 percent between
2010 and 2016 but said it saw markets becoming less tight than
in previous years.
Ten months later, it paints an even more comfortable
picture, saying oil demand will rise by less than 7 percent
between this year and 2017, when it will reach 95.7 million bpd.
"The demand outlook looks more subdued, while the
transformative power of nonconventional oil production
technologies applied in shale and tight formations in North
America exceeds earlier expectations," it said.
Last year, the IEA said U.S. production of light tight oil
from shale formations was "a game-changer in the making". This
year it says the impact of the new oil streams is increasing.
Global production capacity is expected to increase by 9.3
million bpd by 2017 to 102 million bpd, effectively exceeding
demand by over 6 percent.
"Around 20 percent of liquids growth comes from Iraqi
capacity and 40 percent from North American oil sands or light
tight oil production," the IEA said.
OPEC will also spend heavily on boosting its spare capacity,
which is projected to more than double to 5-7 million bpd, a
level unseen since before the 20032008 oil price rally.
OPEC's spare capacity is seen as the main cushion against
supply disruptions and worries about dwindling capacity have
been one of the main reasons behind recent oil price spikes.
IRANIAN OUTPUT PLUMMETS
Despite the IEA's benign outlook, the agency said there was
exceptional uncertainty about the global economy and heightened
regional geopolitical risks.
"Last year's string of supply disruptions, in Syria, Yemen,
Sudan, the North Sea, Brazil and the Gulf of Mexico, illustrated
the possibility of a 'perfect storm' of coincidental disruptions
in many oil provinces," it said.
"Even those realised disruptions, however, pale in
comparison with the new threat of unrest and political turmoil
spreading further at the heart of the Middle East producing
region," it added.
Oil prices approached $130 per barrel earlier this year, not
far from their 2008 peaks of $147 per barrel, due to worries
over supply disruptions from Iran.
The United States and EU imposed tough new financial
sanctions on Iran this year over its nuclear programme, hurting
Iran's access to some export markets. Israel and the United
States have also said they reserve the right to use force if
necessary to prevent Iran from obtaining a nuclear weapon. Iran
says its nuclear programme is peaceful.
"The situation remains highly unpredictable and the
sustainability of the sanctions over the longer term is
evidently untested," the IEA said.
Last year, the IEA said tighter sanctions on exports of oil
equipment to Iran could result in production capacity declining
by almost a quarter to under 3 million bpd by 2016.
Ten months later, Iran is already producing less than 3
million bpd as Western sanctions stifle exports. The IEA said in
a separate monthly oil report on Friday that it estimated
Iranian oil production had declined by 220,000 bpd in September
to a new multi-decade low of 2.63 million bpd.
"Whereas many expected the sanctions to lose some bite in
September, as Iranian exporters and some of their clients were
reportedly seeking ways to get around insurance constraints, in
fact compliance appears to have tightened," the IEA said.
It estimated Iranian September oil exports fell to 860,000
bpd versus around 2.2 million bpd in 2011. The slump in exports
has led to a steep fall in revenues and clashes on the streets
of Tehran as the local currency collapsed.
(Editing by Peter Graff)