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INTERNATIONAL: IEA predicts less oil demand
The International Energy Agency (IEA) today lowered its global oil demand forecast for 2008 to 87.6 million barrels per day (b/d), down 200,000 barrels from last month's prediction. The lower estimate is now closer to OPEC projections, at 87.07 million b/d. Softening demand is linked to new IMF figures on global economic slowdown, particularly in the United States, which consumes nearly a quarter of the world's oil supply. While some believe emerging-economy demand -- especially from China and India -- will prop up demand forecasts, overall the IEA predicts global oil demand growth will be 1.9% in 2008, compared with last July's 2.2% projection. On the supply side, the IEA flagged the potential for geopolitical tension to reduce output in crude-producing countries such as Venezuela, Iraq and Nigeria, increasing the need for countries to shore up greater stocks. The IEA statement follows the US Energy Department's Short-Term Energy Outlook, released yesterday. This predicts higher production in non-OPEC countries -- with Brazil expected to account for the largest share (counterbalancing declining oil production in the United Kingdom, Mexico and Norway) -- and planned additions to OPEC capacity, particularly in Saudi Arabia, Angola, Kuwait and the United Arab Emirates. It also forecasts that WTI oil prices will average 86.46 dollars a barrel in 2008, revised downward 0.9% from last month. Oil prices have already dropped 7% since their record-setting 100.09 dollars a barrel on January 3. Given prospects for slower oil consumption growth counterbalanced by still-low levels of surplus production capacity, the oil market should remain relatively tight in the near future, with increasing production possibly easing this tightness in the medium term. The downside risk to oil prices is that the economic downturn could prove worse than expected.


POLAND: Controversy saps Bank's standing
The recent resignation of two senior National Bank (NBP) officials, due to conflict between new Governor Slawomir Skrzypek and his deputies, has undermined the central bank's credibility. It comes at a bad time, with inflation rising rapidly and important tasks for the NBP ahead, including introducing the euro. Inflation should decrease, with the Monetary Policy Council in control of interest rates, but the quality of central bank decisions made by the governor's appointees is likely to deteriorate, and this will probably delay euro introduction.


BALTIC STATES: EU power bridge limits Russia reliance
Poland and Lithuania yesterday agreed to establish a 370 million-dollar joint venture to build a power link connecting the two country's electricity grids by 2012. This would allow Lithuania, and its Baltic neighbours Estonia and Latvia, to link to the EU power grid at a time when they face increased dependence on Russian energy imports. The three Baltic states are also planning a 'power bridge' with Sweden. Currently 75% of Lithuania's electricity is produced by its Soviet-era nuclear plant Ignalina, which (under the country's EU accession conditions) must be shut down by 2010. However, plans to build a new reactor by 2015 together with Estonia, Latvia and Poland have been delayed mainly due to Warsaw's demand to for a third of the power. Last week, Lithuania asked the EU to extend Ignalina's lifespan for the period when it faces electricity shortfalls and thus possibly temporary reliance on Russian supplies. The connection to the EU power grid via Poland will reduce Lithuania's reliance on Russia caused by Ignalina's closure. It might also pave the way for an agreement on the new nuclear plant, with Warsaw indicating willingness to lower its demands.




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