Opec Sees Further Drop in Demand

LONDON - World demand for Opec’s oil may take years to recover from the slump in 2009 because of economic weakness and demand destruction, the group said on Wednesday, justifying its slower spending on new supplies.

By Barbara Lewis And Alex Lawler (Reuters)

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Published: Thu 9 Jul 2009, 2:45 AM

Last updated: Thu 2 Apr 2015, 7:35 AM

In its 2009 World Oil Outlook, the Organisation of the Petroleum Exporting Countries said consumption of its crude would not return to 31 million barrels per day (bpd), the level it averaged in 2008 before the economic crisis cut oil use, until 2013.

“Oil demand levels will drop in the short- to medium-term — leading to a rise in overall spare capacity,” Opec Secretary-General Abdullah Al Badri said in the Foreword to the 277-page report.

“This year there are a number of downside risks stemming particularly from the global economy, unreliable market signals and major policy developments,” he said of future demand.

The exporter group joins other forecasters, such as the International Energy Agency, in predicting lower long-term demand. Opec also said it needed to spend less on developing new supplies, a prospect that may dismay oil consumers.

Oil reached a record high near $150 a barrel in July 2008, the day after Opec issued its previous report. It collapsed to $32.40 by December and is now trading at around $62, boosted in part by Opec supply cuts agreed last year.

Opec’s report predicted world oil demand would rise much more slowly than previously expected over the medium and longer term, although supplies would also be lower.

By 2030, Opec expects world consumption to reach 105.6 million bpd, a reduction of 7.7 million bpd — roughly equal to current demand in China, the second-largest oil consumer.

In the medium term, consumption will fall to 84.2 million bpd this year from 85.6 million bpd last year, and rise to 87.9 million bpd by 2013. The 2013 figure is 5.7 million bpd less than previously expected.

“The high prices observed in 2008 led undoubtedly to some demand destruction, and this has been factored into short-term figures,” the report said.

This year’s “reference scenario” is based on the assumption the economy will have hit the bottom by the end of 2009 and begin to recover next year.Growth would gain momentum in 2011 and by 2012 would be “back to trend values,” Opec said.

Slower growth in demand and the steep collapse in oil prices from last year’s record meant Opec needed to spend less on developing new oilfields, the report said.

Members have delayed or postponed more than 35 projects, representing about 5 million bpd of oil capacity, until after 2013. Opec said it needed to invest $110 billion to $120 billion versus $165 billion previously thought.

“It is understandable that any country or investor would be unwilling to invest in capacity that is not needed, especially when they are affected by the global financial and economic crisis,” the report said.

The IEA, which represents 28 industrialised countries, has repeatedly said inadequate investment could lead to a shortfall in energy supplies, which could force energy prices higher and damage any economic recovery.

Last month, the IEA said in its own Medium-Term Oil Market Report looking out to 2014 that the threat of a supply crunch had only been delayed, not averted, by the collapse in demand.

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