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OPEC sees stronger 2014 oil demand

By Reuters - Feb 12,2014 - Last updated at Feb 12,2014

LONDON — World oil demand will rise slightly more than expected in 2014, the Organisation of the Petroleum Exporting Countries (OPEC) said on Wednesday, becoming the second major forecaster this week to predict higher fuel use as economic growth picks up in Europe and the United States.

In a monthly report, OPEC indicated that global demand will rise by 1.09 million barrels per day (bpd) this year, up about 40,000 bpd from its previous forecast. The group, which pumps a third of the world’s oil, also sees potential for further rises.

“Given the improvement in oil demand from the countries of the Organisation for Economic Cooperation and Development, the likelihood for upward adjustments for world oil demand growth in 2014 is currently higher than existing projections,” said the report by economists at OPEC’s Vienna headquarters.

OPEC’s report comes a day after the US government’s Energy Information Administration raised its 2014 world oil demand growth forecast by a similar increment. Oil prices edged higher after it was released, with Brent crude trading near $109 a barrel.

While the bulk of the growth in global oil demand continues to come from China and the Middle East, OPEC was more upbeat about the prospects for further fuel use this year in established economies.

OPEC sees a contraction in European demand — in the doldrums for years due to recession — easing in 2014, and said preliminary figures for December 2013 and January 2014 indicated strong demand in top consumer, the United States.

“The potential of the oil demand forecast for countries of the Organisation for Economic Cooperation and Development leans to the upside as the improving economic conditions in the US and Europe may turn out better than expected,” OPEC said.

“For other countries, risks are skewed to the downside due to fiscal and monetary issues,” it added.

According to secondary sources cited by the report, OPEC raised its own output to 29.71 million bpd in January, as a partial recovery in Libyan shipments — disrupted for months by unrest — was offset by cutbacks in top exporter Saudi Arabia.

But the stronger global demand outlook is not translating yet into higher demand for OPEC oil, as rising supplies including of US shale oil are eroding its market share in 2014.

OPEC raised its estimate of the amount of crude non-member countries are expected to produce this year to 54.14 million bpd, up about 50,000 bpd from the previous estimate.

As a result, OPEC expects demand for the crude pumped by its 12 members to average 29.60 million billion barrels, virtually unchanged and suggesting inventories will build up should the group keep pumping at January’s rate.

Another closely watched oil demand forecast is due on Thursday from the International Energy Agency (IEA), adviser to industrialised countries.

Last month, the IEA’s chief economist told Reuters on the sidelines of the World Economic Forum in Davos that Europe’s high gas prices risk driving away a big share of its energy-intensive industries such as cement and steel unless countries boost shale gas output and trim green subsidies.

“These industries are critical for the European economy as they employ over 30 million people and it could have a major knock-on effect on the European Union economy,” the IEA’s Fatih Birol said.

Concern among European Union (EU) nations about the impact of energy costs on their already suffering industry is intensifying, with some member states debating a freeze on prices and stripping away renewable subsidies.

Gas prices in Europe are around three times higher than those in the United States thanks to a shale gas boom that has seen US output soar, while European consumers increasingly rely on imports from Russia and Norway as domestic fields age.

Tackling the continent’s rising energy bills requires a wide-ranging approach, Birol stressed.

Not only must European countries renegotiate gas contracts — two-thirds of which will expire in the next decade — to get more favourable terms, but they should also boost production of unconventional gas resources such as shale, he said.

EU regulators have already said they are preparing to charge Russian gas export monopoly Gazprom with abusing its dominant position in central and eastern Europe.

They have voiced concern that Gazprom imposed unfair prices by linking gas to oil prices, helping to keep tariffs high, especially to nations most reliant on Russian gas.

The EU should also consider trimming the $60 billion it spends annually on subsidising renewable sources of electricity generation, such as wind and solar.

“In some cases, it is excessive and puts an unnecessary burden on consumers,” Birol said.

The policy recommendations, which also include introducing energy-efficiency measures to cut consumption, follow pleas from industry, which argues energy policy has to focus on affordability.

But with the current gas price disparities between Europe and the United States, more European firms are considering relocating to take advantage of America’s cut-rate energy.

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