OPEC Report: Oil Prices Curb Demand

OPEC said on Monday near-record $70 a barrel oil was already curbing oil demand and the full effects of higher interest rates would be felt next year.

In its monthly Oil Market Report, OPEC kept its forecast for 2006 world oil demand growth at 1.6 percent, or 1.4 million barrels per day, with much of the rise in China and the Middle East.

But it cautioned: "Signs indicate an easing in oil demand, partly due to the high oil prices."

Since the start of this year, OPEC has slowed production gradually as global stockpiles of crude oil reached 20-year highs.

But even with output running below its official ceiling, the 11-member exporters' group has still pumped more than enough to keep the 84.6 million bpd world oil market well supplied.

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Supply disruptions, whether real or threatened, have driven oil to historically high levels near $70, leading some to suggest that record prices will brake demand expansion.

In response, OPEC's 10 members bound by quotas -- excluding Iraq -- have pumped below the group's official 28 million bpd ceiling since January, with output last month at 27.555 million bpd, OPEC said.

OPEC's total production in May was 29.479 million.

A marked downturn began in April, when lead OPEC producer Saudi Arabia cut flows by about 250,000 bpd to match slower demand from refiners during second quarter overhauls.

Output from the world's top exporter sank to 9.194 million bpd in April and 9.161 million bpd in May, the report said.

Demand in the world's biggest oil consumer the United States is being tugged in two directions, according to OPEC. Earlier this year retail gasoline prices rose above the $3 a gallon pain threshold for U.S. motorists, but economic growth is robust.

"Although higher prices are dampening demand for oil products, strong growth in the economy is pushing for extra oil. As a result, demand growth for oil in the rest of this year will be moderately strong."

OPEC raised the projected demand for its oil in the second half of this year while trimming its forecast for output by non-OPEC countries, chiefly Canada, Australia, Angola and Mauritania.

It revised up demand for the third quarter by 80,000 bpd to 28.3 million bpd and by 250,000 bpd to 28.6 million bpd in the fourth.

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