Talking in Tokyo: IEA head Nobuo Tanaka
Tanaka warns of downside risk to oil
There is more downside risk to oil demand than upside risk, the International Energy Agency's head Nobuo Tanaka said today.
"In terms of the oil demand, it is more the downside possiblity," Reuters quoted Tanaka, as saying to a two-day oil market forum in Tokyo.
But he also added that there are upside risks such as weather and geopolitical factors.
The IEA revised upwards its demand growth estimate for 2010 by 120,000 barrels per day to 1.6 million bpd earlier this month.
The strong rebound in demand follows two years of falling consumption as the world struggled with the deepest financial crisis since the 1930s.
Oil market price volatility may increase this year as the global economic recovery gathers pace and eats into inventory and spare capacity, said Tanaka.
Oil demand in 2010 is expected to grow for the first time in three years and spur market dynamic.
"With proliferating uncertainty, the market could easily become again more volatile once economic growth returns and the market potentially tightens," Tanaka said.
But he noted that uncertainty about the durability of the global economic recovery and a lack of clarity among policy makers to curb greenhouse gas emissions made it difficult to predict a timeframe for changes in the demand/supply balance.
The IEA estimates that around $10.5 trillion needs to be invested globally to cap greenhouse gas emissions.
"It is very difficult to map out a clear and certain path for the market due to the uncertainty of economic growth and of policies," he said.
"Policy makers need to step up to the plate. The uncertainties can be lessened with clearer internationally agreed policies that ensure plentiful supply of sustainable and secure energy."
Oil producers would struggle to add much more than 1 million bpd to supply capacity over the next five years, he said, adding that global economic growth of 4% to 5% per year could add 1.2 million bpd per year to demand.
But lower economic growth of 3%percent would cut that demand growth considerably, by about 500,000 bpd, straining producers less, he said.
Energy efficiency and environmental measures could also cut the growth of fuel consumption, he said.
Opec members have said that such unpredictability in demand made it difficult to plan investments in new capacity.
Tanaka said that even with co-ordinated environmental and efficiency policies cutting into demand, Opec would still need to boost capacity by 11 million bpd by 2030.
"The world's major oil producers should not be worried," he said.
More than 80 bankers, executives, analysts and officials attended the meeting to discuss how to rein in volatility in the market, among other issues affecting the price movements of the world's largest commodity market.
Tanaka called for more transparency, measures to limit market manipulation, and better data from emerging economies.
On Thursday, the commissioner of the US Commodity Futures Trading Commission Scott O'Malia said he would like the commission to have regulatory jurisdiction over the $300 billion US over-the-counter energy market.
The US Congress is expected to pass a regulatory reform bill this year that would include giving the top futures watchdog more clout to regulate over-the-counter swaps.
The IEA and Institute of Energy Economics Japan, which hosted the two-day event, cautioned against any rules that could impair liquidity.