VENEZUELA - The Global Market Perspective.

World oil prices dropped sharply on Nov. 10 after a jump in US crude oil inventories signalled that demand for energy was cooling. The IEA followed up US government data by shaving its forecast for oil demand growth in 2005 and 2006, though this had little impact on prices. December WTI at NYMEX fell $1.13 to $57.80/barrel, its lowest close since July 21. At the IPE in London, December Brent fell $1.20 to end at $55.68/b. Prices slid despite Nov. 9 suicide bomb attacks on three hotels in Jordan's capital which killed 60 people and wounded 130 others.

On Nov. 11 AFP quoted Fimat analyst Mike Fitzpatrick as saying: "Against the backdrop of the continuing civil unrest in France and the spreading avian flu concerns, it can't help but have a negative effect on global travel and tourism. Normally, market reaction to an event like...[the] explosions in Amman would have caused prices to rise as a result of heightened concern over the security of oil supplies. In this case, however, the thread that connects all these to lower prices is contracting demand".

The US Department of Energy's EIA on Nov. 9 said crude stockpiles had risen for the fifth week, by 4.5m barrels to 323.6m in the week ending on Nov. 4. Gasoline stocks climbed 4.2m barrels to 201.1m. The EIA report "showed a surprisingly large increase in crude supply, increasing concerns that demand is faltering", Sucden analyst Sam Tilley said. French bank Societe Generale added that "in short, hurricane-hammered product stocks are rebuilding amazingly fast". WTI futures in New York have fallen by more than 18% since reaching a record high of $70.85/b on Aug. 31, two days after Hurricane Katrina hit major oil installations in the Gulf f Mexico and onshore refineries.

EIA data showed that distillate supplies, including diesel and heating oil, fell by a mere 100,000 barrels to 120.8m, as refineries worked on producing more gasoline. Unusually mild weather ahead of the northern hemisphere winter means that providing distillates has become less of a priority for refineries.

Bill O'Grady at AG Edwards was on Nov. 11 quoted as saying: "We are at a time of year when demand drives the market and with all these mild temperatures", prices are heading down. Markets digested news from the IEA, which said it was revising down its forecast for growth of global oil demand this year by 70,000 b/d to 1.20m b/d. For next year, it lowered forecast demand by 90,000 b/d to 1.66m b/d. The IEA forecast was fairly benign. The adjustment to the 2005 demand forecast was largely weather related, assuming a mild winter in the fourth quarter, and the small downward adjustment to 2006 was largely the ongoing impact of the hurricanes.

The Paris-based IEA says crude oil prices by 2030 would be 50% higher than today if Saudi Arabia did not muster the political will to invest billions of dollars in new oil production capacity. The Financial Times on Nov. 3 quoted Fatih Birol, IEA's chief economist, as saying Saudi Arabia might not make the investment needed to ensure production met the strong demand growth in China and India, adding: "It is not a problem of availability of reserves or capital. We need to be sure that the increase in production will be high enough and a sustained production capacity increase policy is in place. That will need sustained political will". Saudi Arabia has plans to invest $14 bn to raise output capacity from 11m b/d to 12.5m b/d by 2009.

The IEA said Saudi Arabia would need almost to double current output of 10m b/d to meet demand expectations in 2030. Birol said the kingdom might muster the long-term political will only to produce just over half the extra barrels deemed necessary. Iran and Iraq are also vital to ensuring adequate oil and gas supplies in the next 25 years. But both face political hurdles to get the investment needed. Middle East states fear that investing heavily in new oil supplies will deplete fields too quickly and cut income by depressing oil prices. Birol said: "We may end up with much less oil from the Middle East than we demand".

There is a risk of higher oil prices if current investment in the Middle East is not stepped as required. Birol added: "Such high oil prices would be an additional trigger for major consuming nations to introduce policies to save oil and look for alternative sources. If they don't, the global economy but mainly the economies of the consuming nations will suffer".

IEA's price forecast, often conservative, forms the benchmark for many other forecasts, including those made by central banks, oil firms and big oil producers. The agency's near-term forecasts are below crude oil's current price range of about $60/b because the IEA expects new supplies of oil and investment in platforms, pipelines and refineries to ease the current crunch. Oil demand is expected to more than double by 2030. Much of the increase will have to be met by countries in the Middle East and Africa. Demand for natural gas will grow at a faster rate, with Qatar, Algeria and Iran as its biggest producers.