The world faces an oil supply crunch with prices poised to soar to new all-time highs over the next five years, a report from the International Energy Agency warned yesterday. In its Medium-Term Oil Market report the Paris-based organisation predicted that demand would rise by 2.2 per cent a year between 2007 and 2012 - up from a previous forecast of 2 per cent - as the world's economy expands at about 4.5 per cent a year. That means demand is set to grow by 1.9m barrels a day to 95.8m barrels a day by 2012.

The demand will be driven by the fast-growing economies of Asia and the Middle East, where the thirst for black gold will grow more than three times faster than the 30 industrialised members of the Organisation for Economic Co-operation and Development. That is because several countries in those regions are set to break the $3,000 per capita income level, when consumers can afford to buy energy-consuming products such as cars and white goods.

Industrial nations are also expected to have to place an increasing reliance on Opec companies to meet the demand, thanks to continuing geopolitical tensions in alternative producers. The report assumes no net expansion of capacity from Iran, Iraq and Venezuela and that 500,000 barrels a day of Nigerian oil - shut for a year - will not reopen in the next five. Yesterday oil prices rose to an 11-month high above $76 a barrel, as rising demand and maintenance of the North Sea field fuelled worries about supplies.

Brent Crude climbed to a high of $76.34 - not reached since last August, when a record high of $78.65 was recorded. Analysts warned that prices were likely to remain high amid continuing global tensions, kidnappings in Nigeria and the hurricane season coming into full swing. The IEA's report said: "Despite four years of high oil prices, this report sees increasing market tightness beyond 2010. It is possible that the supply crunch could be deferred - but not by much."

It continues: "The potential effects of a combination of low Opec spare capacity and slow non-Opec production growth are of significant concern - all the more so when considered alongside tightness in other hydrocarbons, particularly the natural gas market." IEA's head of oil industry and markets division Lawrence Eagles warned: "The results of our analysis are quite strong. Something needs to happen. Either we need to have more supplies coming on stream, or we need to have lower demand growth."

The IEA has also warned that additional global refining capacity over the next five years will not match earlier expectations as a result of rising costs and a shortage of engineers. This will delay construction. Production of biofuels is set to reach 1.75m barrels per day by 2012 - more than double last year's levels, but this will leave its contribution at just 2 per cent of global supplies, and the economics of producing the fuel is likely to hinder further growth.
(By James Moore, The independent, 09/07/2007)