Sky-high oil prices are beginning to dent oil demand growth, the International Energy Agency said on Tuesday, but added prices could ultimately moderate through a global economic slowdown.

Its view echoed a report from the International Monetary Fund on Monday which said that oil prices and inflation were the key risks for to the global recovery.

That had contributed to a 3% drop in oil prices on Monday, but Brent crude rose a dollar on Tuesday to over US$125 a barrel as some analysts said the IEA report was less negative than expected

Few expected OPEC oil producers to formally agree to pump more to bring prices down, the IEA said.

“That leaves a less palatable route to price moderation — namely economic slow-down and weaker demand growth,” it said in its monthly report.

“There are real risks however that a sustained, US$100 per barrel plus price environment will prove incompatible with the currently expected pace of economic recovery.”

The energy advisor to the Organisation for Economic Co-operation and Development (OECD) said data for January and February suggested that high oil prices may have started to dent demand growth.

But it kept its 2011 global oil demand growth forecast unchanged at 1.4 million barrels per day or 1.6%.

“The IEA writes a lot about “signs of slowing demand” but has not really changed its forecast numbers; hence combined with its low estimate for Saudi production we view this report less negative than expected,” said Olivier Jakob from Petromatrix.

The head of the IEA’s oil industry and markets division David Fyfe said the agency had noticed slowing demand trends in the United States and Asia Pacific.

“There’s been a marked slowdown since autumn last year. China is looking a bit slower. Thailand and Malaysia have seen a bit of a slowdown,” he said.

“We are quite early in the cycle, we have only been above US$100 a barrel for the first quarter. We would expect sustained economic effect from prices to take 6 to 12 months to fed through,” he added.

He said that slower demand in some Asian countries could be offset by stronger demand from Japan which may have to ramp up its oil use by about 150,000 barrels per day to compensate for lost nuclear power generation after a devastating quake.

Fyfe also said that despite early signs of demand destruction because of high oil prices, it was too early to predict the end of the rally.

“It’s difficult to see where is the high water mark for political unrest. Arguably some of this uncertainty in the MENA (Middle East-North Africa) region has a while further to run,” he said.

TIGHT SUPPLY

The IEA said tight supply was a further concern. Global oil output fell by around 0.7 million barrels per day in March to 88.27 million bpd due to civil war in Libya.

“Hypothetically, if global supply were to chug along at March levels for the rest of 2011, OECD inventory could slip to near five-year lows by December,” it said.

The IEA said OPEC March production was 0.6 million bpd below what it sees as average demand for OPEC oil in 2011.

However, the IEA said it believed OPEC spare capacity stood at a comfortable level of 3.91 million bpd, with Saudi Arabia accounting for 3.2 million alone, countering industry concerns OPEC’s spare supply cushion was much smaller.

“The response from OPEC to the loss of Libyan crude has been quite modest. We are still waiting to see much sign of a pickup in terms of rising OPEC supplies,” said David Fyfe, head of IEA’s oil industry and markets division.

The IEA also said non-OPEC output was up 0.2 million bpd in March to 53.3 million despite unrest in Yemen, Oman and Ivory Coast and a strike in Gabon.

 Article provided via The Financial Post

http://www.financialpost.com/news/prices+could+derail+world+economy+again/4600035/story.html

" USD - U.S. trade gap falls in February  "..

" automotive imports and capital goods dropped, while consumer goods rose " ...

The U.S. trade deficit shrank in February as imports fell more than exports, according to a government report on Tuesday that suggested a slowdown in global demand.

The monthly trade gap totaled $45.8-billion (U.S.), down from an upwardly revised estimate of $47-billion in January. Analysts surveyed before the report had expected the deficit to narrow to $44.5-billion, from the previously reported January tally of $46.3-billion.

U.S. exports, after rising in each of the previous five months, fell 1.4 per cent in February to $165.1-billion. That was led by a $1-billion drop in auto and auto parts exports, with smaller declines for other major categories. Services exports rose just enough to set a record.

U.S. imports, which like U.S exports have roared back from the depths of the global financial crisis in 2008 and 2009, fell a larger 1.7 per cent in February to $210.9-billion.

Automotive imports fell $2.3-billion, followed by a $2.1-billion drop in capital goods. Imports of consumer goods rose $2.3-billion in February.

The average price for imported oil rose for the fifth straight month in February to $87.17 per barrel, the highest since October 2008. But that was tempered by the lowest quantity of crude oil imports since February 1999.

The closely watched U.S. trade deficit with China shrank 19 per cent in February to $18.8-billion, as U.S. imports from that country fell and U.S. exports to the Asian manufacturing giant rose.

While Beijing could point to the smaller trade gap as a sign its economy was becoming less reliant on exports, the U.S trade deficit with China was still 21 per cent higher for the first two months of the year.

China’s own trade figures released earlier this week showed that in the first quarter of 2011 it ran an overall trade deficit for the first time since 2004.

Article provided via The Globe and Mail 

http://www.theglobeandmail.com/report-on-business/economy/trade/us-trade-gap-falls-in-february/article1981539/

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