Oil supply risks offset higher output capacity

However West Asia tension and supply risks might prevent prices from falling

Growth of global thirst for oil should slow to 2016, the IEA said today, but West Asia tension and supply risks might prevent prices from falling.

The International Energy Agency now expects global demand for oil to grow by half a million barrels a day less than previously estimated.

It stressed uncertainty on every front and said that the oil market was now at a "crossroads".

But global thirst for oil will still increase by 1.2% or 1.1 mbd per year over the next five years, to 95.7 mbd from 89.0 mbd in 2011, a statement said.

The IEA spoke cautiously of a "seemingly more benign medium-term market outlook,"based in part on increased OPEC output.

The agency set its outlook "against the backdrop of sluggish economic growth and increasing energy efficiency," particularly in advanced economies.

There was great uncertainty over the trend of prices, which remained firm because of potential threats to Gulf supplies, the agency said, a result of sanctions on Iran related to Tehran's nuclear ambitions.

"The reality of Middle Eastern and North African geopolitical risk" has become "a concrete and immediate possibility," the IEA said.

Last year, a "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 added.

The agency highlighted a major shift in energy production owing to the development of North American resources which have resulted in "some of the lowest energy costs on the planet in the form of cheap natural gas."

The IEA, which was set up to help establish energy policies in major oil consuming nations, nonetheless said in a separate report that "oil prices in general remain elevated, and in parts of North America retail product prices are spiking near record highs."

On the demand side, that from non-OECD economies is expected to overtake OECD members as early as 2014, led by Asia, the former Soviet Union and the West Asia.

IEA executive director Marioa van der Hoeven said: "The oil market is at a crossroads. On each and every front - technology, geopolitics, the economy - potentially game-changing developments are taking place."

Estimated consumption rates both now and in coming years were adjusted downwards meanwhile, and the IEA noted that "even China, the main engine of demand growth in the last decade, is showing signs of slowing down."

On Monday, the Organisaton for Economic Cooperation and Development said it expected that "most major economies will continue to see weakening growth in coming quarters."