'Wall of oil' approaching importers
Group says glut of oil shipments is in transit, but exporters should not cut production too quickly.
LONDON (Reuters) - A "wall of oil" is poised to reach importing countries in the second quarter, traditionally the weakest for demand, but producers would be imprudent to cut output too quickly, an industry group said Thursday.
While leading OPEC members more than compensated for disruptions to Iraqi and Nigerian oil supply last month, talk of a cut in output later this month is "premature," the International Energy Agency said in a monthly report.
"I'm not sure that we have to fear an oversupply," the agency's Executive Director Claude Mandil Mandil told an energy conference in Paris.
"Stocks are very low and have to be rebuilt, and to rebuild the market needs extra supply, and all the more because in less than two months the driving season will start and demand will be high," he said.
The Organization of the Petroleum Exporting Countries is planning an emergency meeting, with many members calling for a reduction in output after a drop in prices to near the group's $25 a barrel target.
The IEA indicated fundamental factors pointed to a comfortable stock build for the second quarter, ahead of the summer demand.
Assuming steady production of nearly 26 million bpd from the cartel, without anything from Iraq, stocks would build at about 2.4 million bpd during the slow demand second quarter, IEA figures show.
Recent OPEC production increases have yet to show up in consumer country inventories because refiners have limited purchases in the hope of lower prices after the war on Iraq, the IEA said.
"The net result is a temporary backlog of crude on the water," the agency said. "There has been talk of a 'wall of crude' on the water that is waiting to arrive in key consuming regions," it added.
But for the IEA, adviser on energy to 26 industrialized nations, supply dangers still loom.
Iraq's continued outage, Nigerian disruptions ahead of presidential elections and Venezuela's underperforming output after an opposition strike make for uncertainties, it said.
Market attention has shifted from fears of a shortage to fears of a glut after OPEC members led by Venezuela, Saudi Arabia and Kuwait were able to compensate for lost output in March due to the attack on Iraq and violence in Nigeria.
The 11-member group boosted production by 95,000 bpd to a total 27.31 million bpd last month, the IEA said.
"Consumers are growing increasingly confident that the market can weather the storm caused by concurrent supply disruptions in Iraq, Venezuela and Nigeria," it said.
Excluding Iraq, the members governed by output limits lifted production by 1.13 million bpd to 25.86 million bpd.
This is 1.4 million bpd over the group's production target, the bulk of that from Saudi Arabia, which boosted production to an estimated 9.32 million bpd in March, the report said. In the second half of March, Saudi output was over 9.5 million bpd.
The IEA said Venezuelan production had recovered from a crippling opposition strike more quickly than expected, averaging 2.1 million bpd by the end of the month. But it said output may rise only another 300,000 bpd because some 400,000 bpd of capacity had been lost during the strike.
But now the nine members of OPEC -- excluding Iraq, and Venezuela -- have only 1.23 million barrels per day bpd of spare capacity, down from 1.67 million bpd in February, it said.
Global oil production in March jumped 740,000 bpd to 80.27 million bpd, up 4.44 million bpd from a year ago, but more than half of that was non-conventional OPEC natural gas liquids and oils, including the restart of very heavy oil production in Venezuela.
World oil demand is expected to grow by 1.1 million barrels a day this year to 78 million bpd, a forecast steady from its previous report, the IEA said.