Oil prices jumped more than a dollar on Thursday after the International Energy Agency warned that faster-than-expected demand and disappointing world production growth could put world supplies under strain. US light crude was up $1.39, or 2.8 percent, to $46.85 a barrel while London Brent crude was up $1.25 at $44.38. Prices rose after the International Energy Agency, which advises industrialised nations on energy policy, cut its forecast for non-Opec oil supply growth this year, revised up estimates of demand and showed a sharp fall in stocks.
Commercial OECD oil stocks dropped 85 million barrels, or 2.7 million barrels per day (bpd) in December to leave end-December forward demand cover at 51 days - well below the 56 day level Opec producers have said they see as excessive.
"The market will have to get used to working with fewer number of days cover than has been the case in past," said Fimat USA in a report.
A slowdown in supply from Opec's main producer rival, Russia, has helped cut inventories. Russian oil production provisionally fell by 110,000 bpd in January to 9.26 million bpd, a fourth straight monthly decline.
"While 2004 was characterised by surprises in demand, 2005 has begun with changes to the expected supply," the Paris-based agency said.
The impact of lower-than-expected supplies is magnified by continued growth in consumption, which last year grew at the fastest pace in a generation to fuel a 34 percent price rally.
The IEA raised its forecast for world oil consumption this year by 80,000 bpd to 1.52 million bpd, though it warned that higher oil prices could ultimately hurt economic growth.
"The impact of the oil price rise over the past year has been felt and will continue to be felt in 2005. There remains the risk of feeding core price and wage inflation if high prices are sustained," the IEA said.
A mild winter in the northern hemisphere has kept demand growth from being even stronger, and helped pull US crude down about $3 since January 25 when prices were near $50 on concern over cold in the Northeast
Analysts have said that the market's focus is shifting away from heating oil toward gasoline due to the approach of the spring driving season, with forecasts of a warmer than normal February and March.
Crude stocks in the United States are more than 20 million barrels above year-ago levels, while inventories of gasoline are nine million barrels in surplus to last year, the US government said on Wednesday.
At Opec's January 30 meeting ministers said they could consult by telephone on potential production cuts before a mid-March meeting in Isfahan, Iran, if they saw signs that stocks were building to levels that would pressure prices.
Top world exporter Saudi Arabia has kept March crude supplies to term customers steady for March, reducing the chance the Opec cartel will agree an early cut in supply.
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