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Exxon says winter demand won't trim oil glut

Exxon Mobil Corp. sees winter heating demand having a limited effect in reducing a global fuel inventory glut, adding there needs to be a pick-up in industrial and transport demand to bring stockpiles back to normal.

"Inventories are at record highs around the globe. There is a lot of supply that has to come off the water, get into the system and be consumed," said Exxon Chief Executive Rex Tillerson in an interview with Reuters on Friday.

Mr. Tillerson, speaking on the sidelines of a meeting of Pacific Rim political leaders who warned an economic recovery was fragile, said a recovery in demand for passenger, freight and power generation fuels - all of which were linked to an economic rebound - was critical.

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"It's going to have to be demand-driven. That's what it's going to take to pull that inventory level back into a more normal balance," he said.

"Quite frankly, looking at the winter season in the northern hemisphere, even if we have a relatively normal winter, we would still have a fair amount of supply."

Oil prices are holding near $80 (U.S.) a barrel, having doubled in a rally from under $40 at the end of last year after plunging during the financial crisis, but bulging inventories are keeping gains in check.

Diesel and heating fuel in floating storage have increased this year to unprecedented levels as the global recession decimated demand.

But demand for oil products in Asia Pacific will grow steadily, Mr. Tillerson said.

"Asia Pacific is going to see the highest level of demand growth over the next 20-25 years from a fuel products standpoint. This region is going to grow about 1.8 per cent annually, significantly above the rest of the world, and it's reflective of the economic growth that will go on for the next two decades."

For now, current supply to the Asian region is adequate, he added. "In fact, refinery supply today is a little bit long, not just here, but also globally."

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Ghana Interest

Mr. Tillerson would not say whether $80 a barrel for oil was too high or low, and he said price levels did not have a bearing on Exxon's long-term investment spending targets. Last month Exxon, the world's largest publicly traded oil company with a market value of about $345-billion, posted a 68 per cent slump in quarterly net profit to $4.73-billion, or 98 cents per share, missing Wall Street estimates.

In terms of acquisitions, Mr. Tillerson said Exxon was in discussions to buy a stake in two large offshore blocks in West Africa's Ghana.

"We confirm that we are engaged in those discussions," he said, but declined to provide further details.

He also said the firm was in the process of completing "definitive agreements" for Iraq's prized West Qurna field.

Last week, an Exxon-led consortium including Royal Dutch Shell beat rival French, Russian and Chinese groups to secure initial rights to develop West Qurna, which has reserves of 8.7 billion barrels.

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Shift In The Climate

Exxon, skeptical in the past about green energy and having supported research that questioned climate change, is now facing regulation from a controversial U.S. climate change bill that cleared its first hurdle in the U.S. Senate last week.

Mr. Tillerson said it would have a "dramatic" effect on U.S. oil refiners. According to research studies, about 10-15 per cent of refining capacity would have to be shut down, leading to imbalances in U.S. refined product supplies, he added.

Meanwhile, carbon trading was not a workable solution, due to its high price volatility and the huge amount of red tape involved in overseeing the system, Tillerson said.

"We're advocating a revenue-neutral carbon tax, where the revenues from the tax is channelled back in the economy through decreases in payroll taxes, which would protect jobs," he said, adding that this would offer a more transparent price signal to consumers.

On clean energy alternatives, Mr. Tillerson said that algae as a biofuel held the greatest promise. But its $600-million research investment, conducted in partnership with a genome company, would only yield results in more than a decade, he added.

Governments will meet in Copenhagen next month to try to agree a broad and inclusive pact to fight climate change.

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