By Bruce Stanley ~ The Associated Press
LONDON -- Crude prices climbed higher in January despite robust growth in oil production from Saudi Arabia and rebounding exports from Venezuela, the International Energy Agency reported Wednesday.
An expected downturn in demand during the second quarter should help ease the tightness in global crude supplies. However, the possibilities of a U.S.-led war on Iraq, political turmoil in Nigeria and constraints on further growth in Venezuelan output could lead to volatile prices for gasoline during the peak summer driving season, the agency warned in its monthly oil market report.
The Paris-based IEA is the energy watchdog of the Organization for Economic Cooperation and Development, a group of the world's richest countries and biggest oil importers.
Cold weather contributed to a 1.6 percent drawdown of oil inventories in key importing nations in December, as people burned more home heating oil. High prices for natural gas also have encouraged many consumers to switch to oil, adding to the pressure on crude supplies.
At the same time, a general strike slashed oil shipments from Venezuela, normally the third-biggest producer in OPEC.
U.S. gasoline prices spiked by an average of nearly 11 cents per gallon over the two weeks ending Feb. 7, reaching $1.63 per gallon according to the Lundberg Survey of 8,000 filling stations nationwide.
Global oil output increased by 1.6 percent in January to 77.58 million barrels per day.
OPEC contributed three-fourths of this 1.19 million barrel-a-day increase, with Saudi Arabia, Iraq, the United Arab Emirates and Nigeria accounting for the bulk of the additional crude, the IEA said.
However, the agency expressed concern that Venezuela might take a lot longer than its leaders think to return to its pre-strike output of 2.7 million barrels a day. Although its strike appears to be winding down, a shortage of power and supplies needed to restart production of the country's heavier crudes means it might not be able to pump much more than 1.5 million barrels for some time, the IEA said.
"Indeed the Venezuelan situation could prove critical. The real question here is whether recent increases in supply can be sustained," it said.
Given the limited production capacity of other OPEC members, the agency warned there could be little surplus crude if a war disrupts Iraqi exports before Venezuela has fully recovered. Possible turmoil in the run-up to Nigeria's April elections add to the uncertainty about supplies.
"The good news is that winter's coming to an end," Gignoux said.
He added that the IEA's recent confirmation that it would release oil from its strategic stockpiles in the event of a war with Iraq has helped to reassure nervous markets.
Expectations of stronger demand from China led the agency to make a slight revision in its forecast for growth this year in global demand. The IEA said demand would reach 78.01 million barrels a day, an increase that is 7 percent larger than what the agency predicted in its previous report.
Although demand in December rebounded in North America and Asia, sluggish economic growth in Europe, particularly in Germany, offset much of this improvement.