Changes in the structure of the oil market, analysed in some detail by the IEA this week, provide insights into a decision by Opec to skip a special meeting next week and wait until their regular session on September 15 to review production.
The International Energy Agency said strong demand from China was a central factor likely to result in additional peaks in demand for oil outside the peak caused by winter demand in the northern hemisphere.
The IEA said it forecasts for 2005 were based on an assumption that the world economy would continue to expand at the relatively fast pace of 4.0 percent, down from 5.0 percent expected this year.
But "of particular concern is the sustainability of Chinese economic expansion". There were signs that the Chinese authorities were having some success in preventing overheating.
However, the IEA warned, "concerns remain that its efforts may either not be enough or overshoot their target and cause a hard landing". The agency suggested that other factors tending to change the structure of the oil market were rising production by non-Opec producers and capacity constraints on Opec output.
In a report prepared before the decision to cancel the meeting set for Wednesday July 21, the IEA referred to a decision by Opec in June to increase the formal non-Iraq production quota from 23.5 million barrels a day to 26.0 million barrels, in two stages with the second stage being an increase of 500,000 barrels on August 1.
At that time Opec was already producing in real terms about 26.0 million barrels a day.
The IEA wrote: "Saudi Arabia at the time of writing appeared to be suggesting that the increase is automatic, and in reality, any move by the organisation to curb production - actual or quota - could not be enacted before September, since August export schedules have already been, or are in the process of being, decided for several of the key producers ...
"Changes in the target price range of 22-28 dollars per barrel also seem to be off the agenda at least until Opec's next ordinary meeting in September."
Data suggested that Opec could sustain production at close to, or marginally above, June levels in July and into August.
Prices had eased in June owing to "ample" supplies of oil but the situation appeared to have switched back on concern about security of supply and production problems in Iraq, Nigeria the North Sea and US Gulf of Mexico, and uncertainty in Russia.
The agency assessed Opec spare capacity at "only 620,000 barrels per day based on June production" excluding Iraq, Nigeria, Indonesia and Venezuela owing to "a high degree of uncertainty" about problems affecting capacity. This was an "exceptionally slim margin" particularly when output by some key Opec producers appeared to be "at risk of disruption".
But, "cautioning against too alarmist a response to this", the IEA said that Saudi Arabia could boost its estimated immediately available capacity of 9.5 million barrels per day by up to one million barrels.
The United Arab Emirates, Iran, Kuwait, Libya and Qatar collectively had 650,000-850,000 barrels a day of "surge capacity". But this was "not sustainable on a prolonged - 90-day plus - basis".
Some key Opec producers were expanding capacity by an amount estimated by some experts at 1.0-2.0 million barrels per day. But the IEA qualified this with suggestions that two key projects, the Qatif and Abu Safah developments in Saudi Arabia, might be aimed at sustaining, rather than increasing, capacity.
Commenting on Iraqi production, not part of the Opec quota system, the IEA said it seemed to reach a plateau in March "although one cannot overstate the industry's speed and ingenuity in re-instating production and pipeline flows in the aftermath of sabotage."
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