FT: Oil demand to weaken as countries tip into recession
By Javier Blas in London. Published: October 10 2008 09:00 | Last updated: October 10 2008 09:00
Global oil demand will grow far less than forecast this year and in 2009 as the financial crisis risks tipping rich countries “into outright recession”, the International Energy Agency, the western countries’ energy watchdog, said on Friday. But the crisis could also affect supply in the long term as oil companies lacking access to credit have to postpone the development of new oil fields or refineries, it said. The warning came as oil prices extended their losses on Friday, with US crude oil more down more than $4 to $82.0 a barrel, the lowest level in more than a year, ignoring the Opec oil cartel’s decision to call an emergency meeting to discuss a production cut. The IEA cut its forecast for global oil consumption this year to 86.5m barrels a day, about 250,000 b/d less than it said last month. It also cut its projection for 2009 to 87.2m b/d next year, about 450,000 b/d below its previous than forecast. “Weak baseline summer demand in the main OECD consuming countries in the face of higher prices is now being perpetuated by weakening economic prospects and, most recently, by a spiralling liquidity crisis, which risks tipping OECD economies into outright recession,” the IEA said in its monthly oil market report. However, the watchdog said that oil demand growth remained resilient in developing countries. “We have yet to see unambiguous evidence of a sharp slow down from China, while Middle Eastern demand growth remains robust,” it said. China oil consumption will average 8.0m this year and 9.4m b/d and in 2009, all but unchanged from last month’s projection. At the same time, the IEA significantly cut its forecast for non-Opec supply both in 2008 and 2009 and warned that the current credit crisis could delay the development of new projects as even some oil companies lack access to finance. “We should avoid focusing only on the demand side implications of the current financial storm,” it said. “Credit shortages are rapidly becoming yet another in a long line of impediments to industry investment,” it added. The IEA said non-Opec supply will grow this year just 150,000 b/d to 49.8m b/d, about 200,000 b/d less it forecast last month. It forecast 2009 growth at 660,000 b/d to 50.4m b/d, about 200,000 less than last month. In early morning trading in London, crude oil futures were falling sharply. Nymex November West Texas Intermediate dropped $4.30 to $82.29 a barrel while ICE November Brent fell $3.62 to $79.04 a barrel. The drop in prices in spite of Opec’s call for an emergency meeting suggested that the market is firmly focused on the impact of the financial crisis on global economic growth and energy demand next year, rather than in the cartel’s action. The cartel, which controls 40 per cent of the world’s oil output, said on Thursday in an unusually frank statement that it was concerned about the “deteriorating economic conditions with contagion risks” and will meet in four weeks to tackle the problem. Opec said it would meet on November 18 in Vienna, a month before it was originally due to have its next gathering. The IEA said that Opec production in September fell by 300,000 b/d to 32.3m b/d as result of ”production outages” rather than a policy shift. The cartel agreed in September to trim its supply by 500,000 b/d from October, although analysts are unsure if the group has started to cut production yet. Saudi Arabia production in September was estimated at 9.45m b/d, down marginally from 9.5m b/d in August, the IEA said.