IEA Director Tanaka: High Distillate Inventories Signal Slow Economic Recovery
IEA director Nobua Tanaka. (image: iea.org)
International Energy Agency executive director Nobuo Tanaka has a lot on his mind, as detailed in a Reuters article published on Tuesday.
At the top of his agenda is the state of the world’s economy. Though expectations of economic recovery and revived oil demand are high, Tanaka said that stocks of distillate fuel—which includes diesel and heating oil—remain high throughout the member countries of the Organization for Economic Cooperation and Development, which is comprised of the globe’s 30 biggest economies. A lack of demand for diesel fuel, Tanaka said, serves as an indicator for industrial production.
Ship brokers ICAP estimate that over 90 million barrels of oil products are currently stored at sea. Another 6.5 million barrels could be added to this total by the end of the year. This, more than anything else, indicates the huge amount of supply currently backlogged.
The large stockpiles of fuel could also make it difficult for OPEC to determine whether to raise or lower oil production at its next meeting scheduled for December. Tanaka said:
“OECD inventories are very high, and OPEC’s concern is the global economic recovery, so if the economies recover in a robust manner, they will have to produce more. If not, just simply adding to the stock levels does not make any sense.”
However, despite weak demand and large supply, the price of crude oil has hovered around the $80 per barrel mark, significantly higher than prices were this time last year. One reason for this, he said, was the weakening of the dollar, the currency used to price oil.
The loss of value in the dollar has become so pronounced that some have called for it to be replaced with a basket of currencies when pricing oil, as discussed in October here on HeatingOil.com. However, Tanaka maintained that “the most reliable and liquid currency is still the greenback. Moving away from the dollar may not necessarily be the final solution.”
Tanaka also said that existing oil fields could soon reach their peak. However, offshore and underground oil reservoirs remain largely untapped (a point seconded by oil analyst Stephen Schork); they could play a more prominent role in supplying the world’s with oil if investors felt they could make a profit by exploring these opportunities.
Tanaka’s remarks come on the heel of the IEA’s latest World Energy Outlook, which was released last week. In this report, the IEA predicted that oil consumption would rise to 105 million barrels per day in 2030, up from 85 million today. Along with this would come a gigantic increase in demand for electricity. Combined, this could add to climate change while disrupting the world’s security.
Tanaka also refuted accusations published last week in the Guardian from a whistleblower who says that the IEA is underplaying the potential of an oil shortage: “That article says we are too complacent. That’s not true. In fact, we have been quite alarmist about the necessity of putting huge investments into potential, new fields.”
