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US recession to ease price pressure on oil

ABU DHABI -The slower US and global oil consumption growth, rise in oil and gas output in the Opec beginning in the third quarter 2008 and continuing through 2009, will help drop in demand for oil to ease price pressure.

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Energy Information Agency (EIA) says downward price pressures would increase if the economic slowdown proves deeper or longer than expected, and if higher prices lead to lower consumption and lower demand for Opec crude than currently anticipated.

There is also a risk that any weakness in oil prices could be minimal or short-lived, especially if consumption growth exceeds current expectations or if oil production capacity expansion plans in either Opec or non-Opec nations turn out to be lower than expected.

In addition, Opec production behaviour that would lead to voluntary production cuts aimed at keeping inventories fairly tight would also limit downward price pressure, it says.

Consumption: Data indicates that global consumption rose by roughly 500,000 barrels per day (bbl/d) during the first half of 2008 compared with year-earlier levels, as a 1.3-million bbl/d rise in consumption outside of the OECD was partially countered by an 800,000 bbl/d drop in U.S. consumption compared with year-earlier levels.

The decline in U.S. consumption reflects a slower economic growth and the impact of high prices, which was the largest half-year consumption decline in volume terms in the last 26 years.

Total world oil consumption is expected to grow by a little over 1 million bbl/d during the second half of 2008 and by almost 1 million bbl/d in 2009 compared with year-earlier levels.

The projection for 2009 consumption is about 460,000 bbl/d lower than last month’s assessment, reflecting lower expectations for consumption in the US other OECD bloc.

haseebhaider@khaleejtimes.com