IEA to Cut Oil Demand Forecast, Former Analysts Say

By Grant Smith and Mark Shenk

Nov. 11 (Bloomberg) -- The International Energy Agency may cut its 2009 oil demand forecast for a third month as the threat of the worst recession since World War II saps fuel consumption, former IEA analysts said.

The Paris-based adviser to 28 oil consuming nations will reduce the estimated growth in global demand from 700,000 barrels a day, or 0.8 percent, in its next monthly report on Nov. 13, said four analysts who used to work at the IEA and are now at banks. The International Monetary Fund last week warned of the first simultaneous recession in the U.S., Japan and Europe in more than 60 years.

``Given the downward revisions to the IMF data, it is highly likely they will revise demand down,'' said Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York, who expects demand to shrink 0.4 percent, or 320,000 barrels a day in 2009. ``Anything above zero demand growth now is an optimistic forecast.'' Eagles joined JPMorgan in September after five years as editor of the IEA's monthly report.

Oil prices plunged more than $80 from a record $147.27 a barrel in July as U.S. fuel use slumped to the lowest in nine years. China's economy is expanding at the slowest pace since 2003 as the credit crunch spread to the world's fastest-growing energy consumer.

``It's safe to assume the direction of revisions of the IEA forecast will continue to be down,'' said Mike Wittner, head of oil market research at Societe Generale SA in London and former co-author of the IEA's monthly report during 1997 to 2002.

Decline in Consumption

Crude oil for December delivery today fell as much as $2.12, or 3.4 percent, to $60.29 a barrel on the New York Mercantile Exchange. It was at $60.55 a barrel at 10:35 a.m. Singapore time.

The IEA predicted oil consumption would rise to an average 87.2 million barrels of oil a day next year in its most recent monthly Oil Market Report on Oct. 10.

BNP Paribas SA's Harry Tchilinguirian said there is ``downside risk'' to his forecast that oil demand will expand by 500,000 barrels a day next year. Tchilinguirian left the IEA in 2006.

Societe Generale predicts a 300,000 barrel-a-day increase, while Vitol Group, Wood Mackenzie Consultants Ltd. and JBC Energy said they expect demand to fall in 2009, the first annual contraction since 1983.

IEA Chief Economist Fatih Birol said at a conference in London on Oct. 28 that his demand assumptions for next year range between growth of 500,000 barrels a day and a contraction of the same amount.

`Probably Downgrade'

``Monthly U.S. data paints a weaker picture of demand than the weekly data,'' said Dresdner Kleinwort Group Ltd.'s Gareth Lewis-Davies, who worked as an IEA analyst until 1998. ``If the IEA thinks this data is accurate, then yes, they will probably downgrade their demand numbers.''

The IEA already cut its 2008 forecast about 1.3 million barrels a day in seven revisions this year. Last week, it published a summary of its annual World Energy Outlook, in which it slashed its 2030 projection by 9.4 percent to 106 million.

``They have been overly optimistic about demand for the last few years,'' said David Knapp, senior editor of Energy Intelligence Group and a former director of the IEA's Oil Markets Division.

Gasoline demand from U.S. motorists declined for 28 consecutive weeks and is 3.9 percent lower than a year ago, according to spending data released by MasterCard Inc. on Nov. 4.

OPEC View

Ian Taylor, chief executive officer of closely held commodity trader Vitol Group, said Oct. 28 that crude consumption may decline by 1 million barrels a day next year. John Waterlow, principal analyst at Wood Mackenzie Consultants Ltd., expects a decline of 250,000 barrels.

The Organization of Petroleum Exporting Countries cited falling demand for its Oct. 24 decision to reduce production by 1.5 million barrels a day. OPEC forecasts 87.2 million barrels a day -- the same as the IEA's assessment -- and is scheduled to release its monthly report on Nov. 17. OPEC ministers will discuss the market situation when they meet next on Dec. 17 and may agree to another supply cut then, the group's president, Chakib Khelil, said on Nov. 8 in Algiers.

U.S. fuel demand in the four weeks ended Oct. 10 sank to 18.6 million barrels a day, the lowest since June 1999, according to the Energy Department.

China's gross domestic product may advance 7.5 percent or less next year, the weakest since 1990, according to estimates by Credit Suisse AG, UBS AG and Deutsche Bank AG.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.netMark Shenk in New York at mshenk1@bloomberg.net