World oil supply will rise more slowly than expected by 2013, leaving little spare capacity on the market despite weaker demand growth, the International Energy Agency said on Tuesday.
In its Medium-Term Oil Market Report, the energy adviser to 27 industrialized countries said global supply capacity will reach 95.33 million barrels per day (bpd) by 2012, 2.7 million bpd less than its previous forecast a year ago.
The outlook comes as supply concerns and robust demand in Asia and the Middle East have helped drive crude oil prices to record highs above $140 a barrel, adding a strain to the world economy.
"Structural demand growth in developing countries and ongoing supply constraints continue to paint a tight market picture over the medium term," the Paris-based IEA said.
High prices and slower economic growth are expected to weigh on world demand, although it is forecast to expand faster on average than additions to global supply in the next five years.
Consumption will rise by an average 1.6 percent a year between 2008 and 2013, or some 1.5 million bpd on average, the IEA said.
That is down from a previous medium term forecast of 2.2 percent.
Annual supply growth will match or exceed that level through 2010 but slow to less than 1 million bpd from 2011 to 2013.
Average total supply growth in the period stands at 1.15 million bpd a year.
The IEA also said additional global refining capacity over the next five years would lag expectations, adding to the challenge of meeting rising demand for diesel and other distillate fuels.
Additions to capacity by 2012 are 1 million bpd less than last year's forecast.
Accelerated declines at mature oilfields and long delays and cost overruns at new projects account for the lower supply growth forecast.
The IEA, which has been steadily lowering its forecast for world oil demand during 2008 due to high prices and slowing economies, said the size of the cut to supply was unexpected.
"We thought we would be seeing lower demand, but what surprised us is the scale of the supply revision," said Lawrence Eagles, head of the IEA's Oil Industry and Markets Division and editor of the report.
"Despite the demand revision, we still end up with a similar picture to that of a year ago."
The IEA's previous medium term report said there was a risk of a supply crunch developing in the period to 2012.
Output in 2012 from outside the Organization of the Petroleum Exporting Countries, source of about three in every five barrels, is now expected to be 1.4 million bpd less than previously thought.
Supply will rise to 51.1 million bpd in 2013 from 49.9 million bpd in 2008, the IEA said.
Output of non-OPEC crude alone will remain flat or fall in the next five years.
Production capacity in OPEC countries, also facing cost overruns and delays at new projects, is also expected to lag earlier expectations.
OPEC usually holds part of its production capacity in reserve to make up for supply breaks or to meet unexpected rises in demand.
That margin is expected to wane by the end of the period.
The group's effective unused production will rise from 2.5 million bpd in 2008 to more than 4 million bpd in 2009, before declining again in 2013 to about 1 million bpd, the IEA said.
"Spare capacity is likely to dwindle to minimal levels by 2013 in the absence of accelerated supply-side investment or further efforts to stem demand growth," it said.