Energy watchdog sees risk of tighter oil supplies and higher prices

Friday, March 12th 2004, 12:00 am

By: News On 6

LONDON (AP) _ Hunger for imported oil in China, scanty global inventories of crude, and political unrest in petroleum-rich Venezuela could combine to drive gasoline prices higher this summer, the International Energy Agency warned.

Oil output from OPEC producers has lagged behind the growth in demand in China and other parts of Asia, squeezing oil inventories that already stood at historically low levels. Refiners, meanwhile, are adding to a squeeze on gasoline supplies by planning to shut down their plants for routine maintenance as sales of home heating oil ebb in the Northern Hemisphere, the agency said Thursday in its monthly oil market report.

These constraints suggest that energy markets face an unusually volatile transition as they shift their focus to gasoline before the peak summer driving season in the United States and Europe.

``The current market is more fragile than normal,'' said the IEA, a Paris-based agency that is the energy watchdog for a group of rich oil-importing nations.

Although the IEA analyzes the supply and demand for crude, it avoids trying to predict prices.

However, some analysts foresee misery at the pump for motorists this summer.

``Gas prices in the U.S. do stand a good risk of setting new records. How long these prices will stay high, no one knows,'' said Jan Stuart of FIMAT USA, a New York brokerage.

U.S. demand for gasoline should surge if the economic recovery gathers pace, and Stuart said he sees ``quite a good likelihood'' of gas selling for as much as $3 a gallon.

U.S. prices for all grades of gasoline rose 6.9 cents during the last two weeks of February to an average of $1.75 a gallon, according to the latest Lundberg survey of 8,000 filing stations nationwide. Since late December, U.S. gas prices have risen nearly 25 cents a gallon.

Retail gas prices could jump in Europe, too, though the increase would not be as steep. Because most European countries tax gasoline at a much higher rate than the U.S. government does, a change in the underlying price for gas itself would have a less dramatic impact on the final pump price for Europeans than it would for Americans.

Given a continued rise in Asian oil imports, the IEA again revised its estimate for the growth in worldwide crude demand in 2004. The agency increased its growth forecast by 220,000 barrels a day, or 2.1 percent, to 1.65 million barrels.

Although it continues to believe that demand will sag during a lull in April, May and June, the IEA boosted its estimate for demand in the year's second quarter by 350,000 barrels to 78 million barrels.

``There's no question at all that demand in Asia-Pacific in general is leaping ahead again,'' said John Waterlow of Wood Mackenzie Consultants in Edinburgh, Scotland.

The IEA has singled out China several times in its previous reports as a key reason for quickening growth in global demand. It noted that higher growth is spreading to Taiwan, Thailand and other countries in Asia.

So far, U.S. demand growth is also exceeding expectations for the first quarter of 2004, the IEA said.

World oil supplies crept higher in February to 82 million barrels a day, due mostly to greater production in Russia and North America.

On futures markets Thursday, contracts of North Sea Brent crude for April delivery rose 84 cents to $32.83 a barrel in London. April contracts of light, sweet U.S. crude were 68 cents higher at $36.78 a barrel in New York.

Output by the Organization of Petroleum Exporting Countries fell by 90,000 barrels a day last month to 27.8 million barrels, the agency said. The IEA attributed this decline to fewer shipments from Iraq, where bad weather impeded oil tankers trying to load crude at a Gulf export terminal.

OPEC's output in February _ excluding Iraq, which is not part of the group's production agreement _ was almost unchanged from January at 25.8 million barrels, the IEA said. If true, that means that OPEC continued pumping about 1.3 million barrels more than its self-imposed ceiling of 24.5 million barrels.