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IEA cuts world oil demand forecast again

The energy watchdog for industrialised nations forecast that global oil demand would measure 84.7 million barrels per day (bpd) on average in 2009 -- 570,000 bpd less than its last forecast made in January.

At this level, demand would be 1.1 percent or 1.0 million bpd less than in 2008, when demand also fell compared with the year earlier.

“We seem to be on a downward escalator we can’t get off of,” said David Fyfe, editor of the IEA report.

“Until we see a bottoming out and a degree of stability on the financial and economic side, energy market weakness is going be with us for some time.”

Economic recession in leading economies will rollback world oil consumption to 2006 levels and demand in the United States is expected to fall to 1998 levels, the IEA said.

The watchdog, which has been revising down its once-buoyant forecasts for oil demand steadily since the end of last year, said its figures were based on new economic growth forecasts from the International Monetary Fund.

The IMF slashed its global growth forecast for 2009 at the end of January, saying the financial crisis and spreading economic problems would result in expansion of just 0.5 percent, its lowest rate since World War II.

The bleak economic environment has pushed oil prices down to below 40 dollars a barrel in recent weeks, far from their peaks of nearly 150 dollars last year, despite production cuts by OPEC oil producers.

The Organization of Petroleum Exporting Countries (OPEC) has slashed its output in successive decisions to try to support the plunging market.

The IEA, echoing warnings from industry insiders and OPEC members, warned that one of the effects of low prices would be a delay in investment in future capacity which will be needed once global growth picks up again.

“Ultimately, low prices sow the seeds of their own destruction, and only clear signs of a recovering global economy will spur investment in new oil supply,” the report said.

“The danger is that if too much investment slips now, the scale of the price response to resurgent demand could again destabilise the global economy,” it added.

The secretary general of OPE, Abdalla Salem El-Badri, said on Monday that members of the cartel had already postponed 35 oil drilling projects because of low crude prices.

Many expensive oil projects have been called off in the last 12 months, particularly in Canada’s high-cost tar sands, but news that OPEC countries are also reducing investment has sounded an alarm for analysts.