IEA Cuts Global Oil Demand Forecast Most in 12 Years

By Grant Smith

Nov. 13 (Bloomberg) -- The International Energy Agency, an adviser to 28 nations, cut its global oil demand forecast the most in 12 years as world economic growth deteriorates.

The IEA lowered its 2009 estimate by 670,000 barrels a day, or 0.8 percent, to 86.5 million barrels a day following weaker economic forecasts from the International Monetary Fund, it said in a monthly report today. That's the biggest cut since 1996.

The German economy, Europe's largest, entered its worst recession in at least 12 years as the global financial crisis curbs exports and spending, government data showed today. Last week, the IMF warned of the first simultaneous recession in the U.S., Japan and Europe in more than 60 years.

``It's a heavy downward revision to next year,'' IEA analyst David Martin said in a telephone interview from Paris. ``If the IMF changes their GDP forecasts, we're going to change the assumptions we've got in our models.''

The agency slashed its outlook for the fourth quarter of 2008 by 1 million barrels a day, leaving growth this year at the lowest since 1985.

The U.S. government reduced its forecast for oil prices next year by 43 percent to $63.50 a barrel yesterday as the economic slowdown cuts energy demand. Crude fell below $55 a barrel in New York today, its lowest in 21 months, having plunged 63 percent from its July 11 record of $147.27.

The IEA's revision is ``very much related to the drastic worsening of global economic conditions over the past few weeks, as a result of the ongoing financial crisis,'' the report said. ``Emerging and developing economies will also suffer the consequences of the slowdown.''

Consumption Contracts

Consumption in the world's most developed economies will contract by 1.6 percent next year to 47.1 million barrels a day. The agency lowered its 2009 oil price assumption to $80 a barrel from the $110 forecast it held during the past three months.

Global demand will nonetheless increase by 350,000 barrels a day, or 0.4 percent, next year because of consumption in developing economies, the agency said.

The agency's expectation that demand will expand next year remains more optimistic than several other analysts. JPMorgan Chase & Co.'s Lawrence Eagles, until September head of the IEA's Oil Industry and Markets division, predicts that growth will contract by 320,000 barrels a day next year. That would be the first global annual fall in demand since 1983.

Vitol Gloom

Ian Taylor, chief executive officer of Vitol Group said on Oct. 28 he expects a 1 million barrel decline in 2009, while Wood Mackenzie Consultants Ltd. predict a drop of 250,000 barrels a day.

The IEA cut its 2008 full-year forecast for an eighth time this year, by 330,000 barrels a day to 86.2 million a day.

Production from the Organization of Petroleum Exporting Countries was ``largely unchanged'' last month at 32.1 million barrels a day, the agency said. That's down 700,000 barrels a day from a peak in June, it added, following the group's Sept. 10 decision to observe output quotas more strictly.

OPEC, which supplies more than 40 of the world's crude, will have to provide about 30.6 million barrels a day next year to balance supply and demand, the IEA said, 300,000 barrels a day less than estimated in the previous report. The adjusted ``call'' on OPEC was cut by 400,000 barrels a day in the fourth quarter of this year.

OPEC is considering holding a full meeting at the end of November in Cairo to discuss how to halt the decline in oil prices, an OPEC delegate said.

The IEA also trimmed its forecast for supplies from outside OPEC next year by 150,000 barrels a day to 50.27 million barrels a day because of disappointing production from Canadian tar sands projects, combined with the lingering effects of pipeline disruptions in Azerbaijan and storm damage in the Gulf of Mexico.

That still leaves growth in non-OPEC supply of 600,000 barrels a day next year. Non-OPEC supply expansion for this year was cut 80,000 barrels a day to 49.68 million barrels a day.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net