Oil industry stocks in the countries of the Organisation for Economic Co-operation and Development (OECD) fell sharply in December, the agency added. Stocks were driven down by tax-related selling on the US inventories and by lower levels in Japan, the Paris-based agency said.

The drop of 1.4 million BPD in December resulted in an unexpectedly large 5,00,000 BPD quarterly stockdraw.

OECD oil industry stocks ended at 2751 million barrels in the last year, a little more than 100 million above December 1997, and more than 200 million above year-end levels in 1995 and 1996. About two thirds of theyear-on-year gain came in oil product stocks with half accounted for by middle distillates.

The December stockdraw was largest in the Pacific region where stocks of crude and oil products fell, particularly in middle distillates. In contrast stocks of major oil products in the US and Europe rose as refinery production outpaced demand growth.

But in the US this was more than offset by massive selling of crude oil stocks and other oil products in the last week of the month, probably for tax reasons, IEA said. The combined fall of nearly one million barrels exceeded moderate builds in gasoline, distillate and fuel oil stocks by 6,60,000 BPD.

Total OECD oil industry stocks were revised slightly upward for November but there were very large changes in the regional components. European downward revisions came to 23 million barrels of which more than 20 million was in oil products and concentrated in distillate stocks. But these downward revisions did not quite offset gains in North America and thePacific.

Economic troubles in Brazil might well affect the rest of Latin America and there were worries about the strength of the Chinese economy, the agency said, adding such problems might ultimately affect North America and Europe.

"For these reasons, the downside risk to the oil demand projections remains greater than the upside," it said, adding demand last year had proven even weaker than expected, rising only 2,70,000 BPD. On the supply side, the IEA said prospects for growth in non-OPEC output had diminished, adding supply from producers outside the cartel was expected to rise only 2,00,000 BPD to 44.8 million BPD. The agency's previous revisions to non-OPEC supply have been based on the impact of low oil prices on oil company upstream dpending.