The world faces an energy squeeze as soaring demand for fuel exceeds the rate of growth in the supply of crude oil, the West’s leading energy forecaster has predicted.

In a gloomy appraisal of the global oil balance, the International Energy Agency yesterday predicted a world of increasing market tightness beyond 2010. The world faces a “supply crunch” by 2012, according to the agency’s Medium-Term Oil Market Report, with weak increases in oil output from nonOpec countries colliding with strong demand and diminished spare capacity within the cartel of oil producers.

The oil price bounced higher yesterday in reaction to the IEA’s stark warning about the erosion of Opec spare capacity beyond 2010. Brent crude rose almost a dollar to $76.34 a barrel, its highest level for almost a year and $2 shy of its peak.

Oil analysts said that the IEA’s strong demand growth projections, if they proved to be correct, would lead to upward spikes in the price of crude.

Underlying the agency’s expectation of a supply crunch is its forecast that demand for crude will rise strongly over the five years, driven by global economic growth of 4.5 per cent a year. More cars and white goods in Asia and the Middle East will create oil demand growth three times faster than that of OECD countries.

The IEA acknowledges that the risk to its forecast is weaker growth. “It is possible that the supply crunch could be deferred – but not by much,” it states. GDP growth of 3.2 per cent per annum postpones by a year the point at which oil demand growth surpasses growth in oil supply.

Cost overruns, project delays and manpower problems will continue to hinder the oil industry’s ability to raise its game. Civil strife in Nigeria and Iraq will continue to constrain Opec supply and the IEA predicts no expansion in Iran or Venezuela. That will keep the lid on Opec’s ability to expand its surplus oil buffer, which the IEA reckons will shrink from 3 million barrels a day to 1.5 million in 2012.

Some analysts were yesterday sceptical about the IEA’s dire prognosis, noting that the analysis omits the impact of price on demand. Leo Drollas, of the Centre for Global Energy Studies, said there was already evidence that higher prices had dampened demand for crude. He expected that continued strong demand and an eventual “supply crunch” would be avoided by price increases.

“You cannot have high demand, high oil prices and a high requirement for Opec crude at the same time. Something has to give,” Mr Drollas said.

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