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IEA cuts world oil demand forecast

JANE MERRIMAN

Reuters

May 13, 2008 at 6:43 AM EDT

LONDON — World oil demand will rise less than expected in 2008 because of record prices and slower growth in the United States and elsewhere, the International Energy Agency said on Tuesday.

Consumption will rise by 1.03 million barrels per day (bpd), 230,000 bpd less than the previous forecast, the IEA said. The agency has more than halved its estimate from 2.2 million bpd in July, 2007, and may cut it further.

“This report sees further downward adjustments to demand, and they may not be the last,” said the IEA, adviser to 27 industrialized countries, in its Monthly Oil Market Report.

“Despite an aggressive cut last month in our U.S. demand forecast, further downward revisions are needed this month.”
The report adds to evidence that record-high prices are slowing oil use in the industrialized world and also signals pressure on demand in some emerging countries. Oil hit a record $126.40 a barrel on Monday.

Sustained weakness in European consumption could prompt the IEA to lower its demand forecast further. At the same time, reassessment of fuel subsidies in countries such as Indonesia may create more downside risks.

“We're concerned that the removal of subsidies could cause demand shocks in some non-OECD countries,” said Lawrence Eagles, head of the IEA's Oil Industry and Markets division.

“Certain non-OECD countries can no longer afford the subsidies and have therefore reached tipping point.”

Several countries such as Indonesia, are reassessing the costs of keeping oil price subsidies in place.

Indonesia's subsidies on gasoline, diesel and kerosene are estimated to reach $12 billion in 2008, the IEA said.

Demand growth from emerging countries overall remains strong at 3.7 per cent or 1.4 million bpd in 2008, led by China and the Middle East, the agency said.

But damage caused by Monday's earthquake in China, the country's worst in three decades, has raised questions over its impact on oil consumption.

Oil prices eased after the report was released. U.S. crude was down 62 cents at $123.61 by 1016 GMT.

The latest downward revision in oil demand growth from the IEA follows a cut last month that was the agency's biggest in 7 years.

Weaker demand will cut the need for oil from the Organization of the Petroleum Exporting Countries to between 31.3 million bpd and 31.6 million bpd, the IEA said – below April output of 31.9 million bpd.

Consumer countries including the United States have urged OPEC to produce more oil to ease prices. “They are right – it would,” the IEA said.

“More crude would prompt a more rapid crude stock build and would improve refining margins, allowing more distillates to be produced.”

The IEA said inventories fell in the first three months of 2008, but not as far as they normally do at the time of year.

Commercial oil inventories in the OECD fell by 200,000 bpd in the first quarter of 2008, slightly less than the 400,000 bpd five-year average draw, it said.

This leaves inventories broadly unchanged in March, equalling 53.3 days of demand.