LONDON (Reuters) - World oil demand will rise at its slowest pace in six years during 2008 as a raft of fuel subsidy cuts in Asia erodes consumption, the International Energy Agency said on Tuesday.
But the adviser to 27 industrialized economies also sharply lowered its projection for supply outside the Organization of the Petroleum Exporting Countries, increasing consumers’ reliance on the exporter group.
In its monthly Oil Market Report, the IEA said global oil demand will rise by 800,000 barrels per day (bpd) this year, 230,000 bpd less than its previous forecast.
The head of the IEA’s oil industry and markets division, Lawrence Eagles, told Reuters this year’s demand growth will be the slowest since 2002, when consumption grew by 735,000 bpd and crude averaged just over $26 a barrel.
“It’s two things. The easing of subsidies is one of the main factors and historical growth in Asia is stronger than we previously estimated,” Eagles said.
The report adds to evidence that high oil prices, which hit a record $139.12 on Friday, are slowing oil use. The IEA has more than halved its estimate for demand growth this year from 2.2 million bpd in July 2007.
Rising prices have forced several Asian economies to trim subsidies on domestic fuel in recent weeks.
India, Indonesia, Malaysia, Sri Lanka and Taiwan have all revised their administered prices of fuel, which the IEA said would tame oil demand growth in the region slightly.
Analysts said concern about supply growth overshadowed the cut in demand and oil pared an earlier loss after the report.
U.S. crude was up 40 cents at $134.75 a barrel by 6:22 a.m. EDT.
“I think the report is more on the bullish side,” said Merrill Lynch’s head of global commodity research, Francisco Blanch.
The IEA cut its forecast for non-OPEC supply growth to 460,000 bpd, against 680,000 bpd in its previous report. As a result, it raised its expected demand for OPEC oil for the year by 300,000 bpd to 31.6 million bpd.
The IEA said oil stocks in OECD countries fell 8.1 million barrels in April, in contrast to a typical build at that time of year, and voiced concern about lean inventories.
“Although the numbers look relatively balanced, we’re now into the last month of the second quarter when typically you see a crude stockbuild and there is still no sign of a significant increase,” Eagles said. “That is a concern.”
The IEA report said high oil prices were forcing airlines to cut flights and consumers to drive less and buy more efficient vehicles.
“The lull in oil demand growth, however, may only be temporary as strong economic growth remains the key driving force,” the IEA said.
It added that prospects of a substantial cut in subsidies in China and the Middle East were remote.
Reporting by Santosh Menon, editing by Alex Lawler and William Hardy