The global oil market is returning to a rough balance but Russia's annexation of Crimea has clouded the outlook with both supply and demand growth to slow, the International Energy Agency said Friday. While the IEA has recently been warning of tight markets as oil demand picks up with a recovery of the global economy, it said stocks had improved and a slowdown in the Russian economy would also help relieve pressure.
The IEA left its global demand forecast for 2014 roughly unchanged at 92.7 million barrels per day (mbd), and a trim to its forecast for growth in non-OPEC supplies means the global market will need more oil from the cartel later this year.
"One month after the events in Crimea, market watchers are taking stock of their impact on oil markets," said the Paris-based institution which analyses energy markets for the world's top oil-consuming nations.
"Given the still volatile nature of the situation on the ground, there are more questions than answers," the IEA said in its monthly oil report.
Based on the World Bank's reduced growth forecast of 1.1 percent for Russia in 2014, the IEA trimmed its forecast for Russian oil consumption which it said roughly compensated for upward revisions to emerging market demand in Asia.
However Russian officials have warned that growth could be even more meagre, or that the economy could even contract as the World Bank forecast would happen under an "adverse scenario" of tighter sanctions.
Currently, Western sanctions target some of Russian President Vladimir Putin's top allies and a bank, but the West has vowed to target the broader Russian economy if the Kremlin intervenes in eastern Ukraine where pro-Moscow activists have over the past few days seized government buildings and vowed to vote on splitting from the ex-Soviet country.
The IEA noted that at the current moment the drop in demand growth is counterbalanced by a slower supply growth due to lower expectations of output from Russia and Kazakhstan.
"While non-OPEC supply growth is still forecast to be the highest in decades, expectations are being toned down somewhat," increasing the demands of OPEC, said the IEA.
The IEA trimmed its forecast for non-OPEC supply growth by 0.25 mbd to 1.5 mbd, with overall output at 29.8 mbd.
It raised its estimate of what the global market needs from OPEC production and stocks for the second half of this year by 0.1 mbd to 29.4 mbd.
"On the face of it, non-OPEC supply and global demand growth projections for 2014 as a whole look roughly in balance, though the risks to the forecast remain elevated," the IEA said.
"The balance also implies that OPEC, far from facing a supply glut, will have to raise production..." it added.
Separately, OPEC Secretary General Abdullah El-Badri said Friday that the cartel sees the oil market as "relatively balanced".
"And we expect this to be the case for the rest of 2014," he said at a conference in Paris.
The IEA noted that OPEC crude oil supplies plummeted in March, dropping by 0.9 mbd to 29.62 mbd due to sharply lower supplies from Iraq, Saudi Arabia and Libya.
Saudi production is expected to rebound following completion of scheduled maintenance, the IEA said.
Libyan production could also start returning to the markets as rebels handed back two of four oil terminals they have held since July in dispute with the central government.
El-Badri said he expected Libyan exports to quadruple from current levels to 1 mbd by mid-June.
The IEA said that while "it may thus seem fortunate that the prospects for OPEC output are also on the rise" that this is "not without considerable political risk."
The IEA also noted that Iranian oil exports were holding slightly above the average 1 mbd that is allowed under a relaxation of international sanctions under an interim nuclear deal with Western powers.
The IEA also noted that the situation with low crude stocks in advanced countries has improved considerably. Oil prices slid Friday, with New York's main contract West Texas Intermediate for delivery in May dropping 20 cents to stand at $103.20 a barrel and Brent North Sea crude slid also sliding by 20 cents to $107.26 a barrel.
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