MARKET ROUND-UP: Oil oscillates on bullish IEA report

Oil prices gains of almost $1 on 12 February triggered by a bullish oil market report from the International Energy Agency (IEA) were slowly eroded the following day as investors digested a US inventory report showing a surprise drop in gasoline and crude supplies.

After cold US weather saw oil prices briefly nudge the $60-a-barrel mark at one point in the previous week, spot Brent veered down to trade at $56.83 a barrel on 14 February, compared with $58.93 a week earlier.

The market focused on the IEA's report, released on 13 February, which made large upwards revisions to its demand figures for 2007 while further trimming back its forecasts for non-Opec supply growth.

The IEA increased its demand growth forecast for 2007 by 273,000 barrels a day (b/d), changing the yearly average for demand to 86 million b/d.

Opec's energy arm also lifted its 2006 demand estimate upwards by 111,000 b/d to 84.5 million b/d despite milder than expected

temperatures and a large revision to China's demand estimates.

Growth in global demand in 2007 is due to edge up to 1.8 per cent, compared with a previous estimate of 1.6 per cent.

Demand from OECD countries fell by 0.8 per cent in 2006 on an annual basis but should rebound by the same amount in 2007.

'The obvious implication of these divergent trends in the path of demand and supply is a marked increase on the call for OPEC oil,' says Kevin Norrish, analyst at Barclays Capital. '[It] is now forecast to be far in excess of current OPEC production levels both in the first quarter of 2007 and in 2007 as a whole.'

In its weekly inventory report, the US' Energy Information Administration said crude stocks posted an unexpected decline, falling by 600,000 barrels compared with analyst forecasts of a 1.2 million barrel gain.

Gasoline stocks dropped by

2 million barrels to 225.2 million barrels in contrast with analyst expectations of a 1.4 million barrel jump.

In supply related news, former Iraqi oil minister Issam al-Chalabi expressed a downbeat view on the outlook for future oil production.A media report cited the former minister as saying the country could produce as much as 4 million b/d but is barely managing 1.2 million b/d, adding little has been done in the exploration, production or refining sector since the US invasion.

Commenting on recent attempts to agree on a new hydrocarbons law, the minister said that disagreements on revenue sharing among regional authorities and the federal government were proving hard to overcome.

On 11 February, oil prices had also dropped after Saudi Arabia told Asian refiners to expect larger oil shipments next month, following large cuts in February.