Oil demand to post sharpest fall since 1981: IEA

By Joe Brock

LONDON (Reuters) - World oil demand this year will post the sharpest annual decline since 1981 as the economy struggles to bounce back, the International Energy Agency (IEA) said on Thursday.

Demand will contract by 2.56 million barrels per day (bpd) in 2009, the IEA, which advises 28 industrialised countries, said in a monthly report. It previously forecast demand would fall by 2.4 million bpd this year.

Oil market fundamentals remained weak and a rise in oil prices, which hit $60 a barrel for the first time in six months on Tuesday, was due to sentiment rather than evidence of higher consumption, the agency said.

"The oil price seems to have moved a bit higher in the past month largely on the basis of equity markets and sentiment about potential economic recovery," David Fyfe, head of the IEA's Oil Industry and Markets Division, told Reuters.

"But we're not seeing it in terms of the preliminary demand data for early 2009."

The IEA's forecast follows a lower demand projection from exporter group OPEC on Wednesday. The IEA also said OPEC was pumping more oil, a sign higher prices are prompting members to relax adherence to agreed output curbs.

Oil fell after the report was released, with U.S. crude down $1.00 at $57.02 by 7:52 a.m. EDT. The lower demand forecast was a surprise as IEA Executive Director Nobuo Tanaka said on Wednesday that the forecast would not change much.

Maintaining the bearish tone, the IEA also said oil stocks in the industrialised world ballooned to a fresh 16-year high in March and supply from outside OPEC would not fall as far as previously thought in 2009.

"The report is commensurate with the depth of economic contraction we are currently experiencing," said Harry Tchilinguirian, senior oil analyst at BNP Paribas.

"Our view is that positive growth will emerge for the major economies in mid-2010 and on that basis the IEA's bearish report is not surprising."

IEA MOST BEARISH

The IEA's previous prediction for the decline in 2009 world oil demand was already the largest among analysts tracked by Reuters.

The agency now expects demand to average 83.2 million bpd -- lower than the 84.03 million bpd expected by the Organization of the Petroleum Exporting Countries (OPEC), which issued its Monthly Oil Market Report on Wednesday.

OPEC has promised to cut oil supply by 4.2 million bpd, equal to about 5 percent of daily world demand, from its output levels since September, to try to support prices.

The IEA's report, like that of OPEC on Wednesday, said the group reduced its level of adherence to supply targets in April after several months of lowering supplies.