PARIS (MNI) - Oil prices would ease slightly through 2015 while still remaining above $100 per barrel in the medium-term baseline outlook released Thursday by the International Energy Agency.

The scenario, which assumes global GDP growth of around 4.5% per year, sees oil demand rising by around 6 million barrels per day (mb/d) through 2016 and global output capacity growing somewhat faster, by over 7 mb/d, during the same period.

However, non-OPEC supply is seen increasing only around 2 mb/d through 2016, which would increase the world's reliance on OPEC supply (or stocks) by more than 2.3 mb/d on average to 32.5 mb/d in 2016. Over the same period, OPEC's crude capacity is expected to expand by more than 3.5 mb/d to 37.85 mb/d, theoretically creating some cushion for an oil-hungry world.

Since its previous medium-term outlook in December, the IEA has hiked its projections for global demand by up to 850 kb/d through 2015, despite the marked rise in spot prices in the meantime.

"The juxtaposition of triple-digit oil prices and 4.5% global economic growth looks paradoxical, but partly reflects the time lags affecting oil market dynamics," the IEA explained. "High prices and buoyant economic (and oil demand) growth can co-exist -- for a while.""Oil demand growth of +1.2 mb/d per year during 2010-16 derives entirely from the non-OECD countries, with China alone accounting for over 40% of the increase," it said. "Efficiency gains in the maturing OECD markets will check overall growth in oil demand there, leading to a yearly contraction of 260 kb/d. That decline is sharper than in our earlier projections, in part due to higher assumed prices.""The global oil market balance clearly shows that the flexibility provided by upstream spare capacity and OECD inventories has diminished considerably over the last 12 months, despite increased upstream activity levels and resurgent non-OPEC supply," it said. "Amid heightened tensions in the Middle East and North Africa region, there are already signs that the market considers the current, diminished supply cushion uncomfortably thin.""On the other hand, if triple-digit oil prices do begin to inhibit economic recovery, then our lower GDP case [+3.3% per year] suggests rising spare capacity and perhaps some temporary mid-term relief from relentless upward price pressures," it added.

The IEA rejected arguments that speculation and exchange movements drive oil prices, arguing that "oil prices may affect exchange rates more than the converse. Moreover, levels of speculative activity, relative to risk-hedging appetite within the market, look to be below those of 2008.""There is little evidence of todays oil market being structurally more volatile than in the past," it claimed.

Global oil supply rose by 270 kb/d in May from 87.41 mb/d in April, with OPEC crude underpinning the rise. Non-OPEC supply growth in 2011 is now +560 kb/d, half of 2010 levels. Revisions to refinery processing gains cut 0.2 mb/d from 2008-2011 supply, and outages in the Americas, UK and Yemen shave another 0.2 mb/d off 2011.

OPEC May crude supply rose by 210 kb/d to average 29.18 mb/d, but remains 1.25 mb/d below pre-Libyan crisis levels. Increases from Saudi Arabia, Nigeria, Kuwait and Iraq offset lower UAE and Angolan output. Effective spare capacity stands at 4.01 mb/d. The 2011 "call on OPEC crude and stock change" is revised up by 0.4 mb/d to 30.1 mb/d, and increases by 1 mb/d between 2Q11 and 3Q11.

April OECD industry stocks rose by a seasonally strong 34.5 mb, to 2.668 billion barrels or 59.1 days of forward demand cover. Japanese restocking accounted for almost 75% of the increase. Preliminary data indicate OECD inventories built by a further 19.5 mb in May, but oil held in short-term floating storage, especially products, declined.

Global refinery crude demand is expected to rise sharply from a low point of 72.6 mb/d in April to 76.4 mb/d in July as US and European refiners exit turnarounds and replenish depleted oil product stocks for peak summer demand. Global throughputs are estimated to add 2.5 mb/d between 2Q11 and 3Q11, reaching 76.1 mb/d on average.

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