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Oil pumps at work on an oilfield in Los Angeles on May 12, 2009.


The oil market is likely to "moderate in the short term" as global demand continues to ease, reducing the estimate for 2011 by another 200,000 barrels per day, according to the International Energy Agency.

The monthly oil market report, released on Tuesday, suggests that the world's economic slowdown is steadily bringing demand growth back in line with supply.

The IEA has knocked 200,000 barrels a day off its demand estimate for this year, bringing it to 89.3 million b/d. As for next year, the agency has revised its prediction downwards by 400,000 b/d to 90.7 million b/d. This assumes total world economic growth of 4 per cent this year and next.

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But the IEA cautions that if actual expansion turns out to be one-third below this estimate, total demand in 2011 would be lowered by another 300,000 b/d and 1 million b/d next year. "This latter case is not our 'most likely' prognosis, but the financial and economic headwinds are nonetheless gathering momentum," adds the IEA.

Overall, the agency believes that "significant economic threats" serve to "skew the overall demand side risk to the downside." The report adds that "consumer confidence has plummeted" in the developed world with "manufacturing indicators easing globally."

On the supply picture, the IEA believes that total production by the OPEC cartel has expanded by a modest 170,000 b/d to reach 30.26 million b/d in August. The easing of demand growth means the "call" on OPEC's crude is likely to be in balance with the cartel's output by the fourth quarter of this year.

The IEA believes that demand for OPEC oil will average between 30 million and 30.5 million b/d, a level that stands "near recent OPEC output levels." The reports adds: "That suggests that the recent spell of market tightening could moderate in the short term, assuming that recent supply disruptions also recede."

The IEA also suggests that Libya will produce 300,000 b/d in the fourth quarter, but adds that the "road back to full operational recovery is likely to be a long and difficult one."

Using "cautious" assumptions, the IEA believes Libyan output will reach 1.1 million b/d by the final quarter of next year, compared with its pre-war level of 1.6 million b/d, of which 1.2 million b/d were exported to Europe. The report suggests that a "two to three year time frame" will be needed before Libya's production returns to this level.

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