LONDON (Reuters) - World oil demand will contract sharply in 2009 as global economic slowdown further erodes consumption, the International Energy Agency (IEA) said on Friday.
The Paris-based agency joined the ranks of forecasters predicting a fall in global oil demand this year, revising its previous 2009 estimate down by 940,000 barrels per day (bpd) to 85.3 million bpd — a 500,000 bpd year-on-year fall.
“Forecast global oil demand has been sharply revised down for 2009, following a reassessment of global economic prospects,” the adviser to industrialized nations said in its monthly report.
“Global GDP growth has been roughly halved to 1.2 percent, given the worsening outlook in OECD and non-OECD countries alike. The expected two-year contraction in oil demand will be the first since the early 1980s.”
The IEA’s 940,000 bpd revision to its 2009 estimate is its biggest single month’s revision in recent times, David Fyfe, head of the IEA’s Oil Industry & Markets Division, told Reuters.
In its previous report, the IEA forecast global oil demand would fall in 2008, but recover to grow by 440,000 bpd in 2009, based on the resilience of emerging economies.
However, the agency now sees Chinese oil demand growth at just 90,000 bpd in 2009, as its GDP growth contracts to 6.5 percent — the slowest rate in eight years.
Chinese demand for oil to fuel its rapidly expanding economy was seen as one of the key reasons that crude prices rose from around $20 a barrel at the start of 2002 to a peak above $147 in July 2008.
Oil prices have since collapsed to around $35 a barrel as the severity of the economic downturn and subsequent drop in global fuel consumption became clear.
Reflecting the speed of the world slowdown, the IEA has taken the step of pre-empting further downward revisions to global economic growth projections from the International Monetary Fund and other agencies, on which it bases its assumptions.
The IEA said it could well revise its own estimates even lower should the economic outlook continue to deteriorate.
“It’s really become obvious since our last report that the major institutions have been flagging a downgrade to economic growth forecasts for 2009,” said David Fyfe at the IEA.
“We’ve taken a robust approach this month, but you can never say never in terms of the risks.”
As demand drops amid the current economic slowdown, oil inventories in the Organization for Economic Co-operation and Development (OECD) have remained at high levels.
Stocks at the end of November equaled 56.4 days of cover, compared with 56.8 days at the end of October.
The IEA said production cuts by the Organization of the Petroleum Exporting Countries (OPEC), which total 4.2 million bpd since September, could reduce stockpiles as its current output targets are lower than projected demand for its crude oil.
“OPEC’s production target looks to us to be below the underlying ‘call’ for 2009,” the IEA said. “Commercial inventory could therefore tighten, even while spare capacity increases, albeit Q4 stocks are starting from a high base at 56 days plus of forward cover.”
The IEA sees the demand for OPEC crude at between 29.5 and 30 million bpd in 2009. If the producer group succeeds in hitting its reduced production targets, output from all 13 OPEC nations, including lapsed member Indonesia, should total 28.2 million bpd, the IEA said.
However the agency added that the estimated 50-80 million barrels of oil which is in floating storage, as producers wait in hope for higher prices, could hamper OPEC’s ability to reduce the stock overhang.
Total non-OPEC production in 2009 is now forecast to rise to 50 million bpd by the IEA, a 30,000 bpd downward revision from last month’s estimate.
Non-OPEC production fell by 150,000 bpd in 2008 to around 49.5 million bpd, the IEA said, the first drop in output since 2005 due to supply disruptions and declining Russian production.
Reporting by David Sheppard; Editing by William Hardy