Oil Demand to Fall 500,000 Barrels a Day, CGES Says

By Anthony DiPaola

Dec. 15 (Bloomberg) -- World oil demand may fall by an average of 500,000 barrels a day next year because of high crude prices and slumping economies, the Centre for Global Energy Studies said.

The Organization of Petroleum Exporting Countries, set to cut oil production at their meeting this week to prop up prices, risks eroding demand further if it adds to consumer costs, the group said in its monthly oil report today.

“When OPEC meets in Oran, Algeria, the questions will not be whether to cut output quotas further, but how deep to make the cut,” CGES said. “A bigger output cut, in pursuit of much higher prices, risks undermining the already fragile economy.”

The 13 members of OPEC, supplier of more than 40 percent of the world’s oil, will meet Dec. 17 for the fourth time in as many months, to discuss further output cuts after crude prices plunged $100 from July’s all-time high of $147.27 a barrel.

OPEC should make a “sizeable” cut in oil production because there is excess inventory in the market, Secretary- General Abdalla el-Badri said today.

Iran and Venezuela, labeled “price hawks” in the report, may seek a 2 million-barrel-a-day reduction in the group’s production quota, while others such as Saudi Arabia may call for a 1 million-barrel-a-day cut, CGES said.

It will be “highly unlikely” that cuts will allow OPEC to reach its $75 a barrel target in the near future, according to the CGES report. Lower prices would help the world economy and avoid further destroying oil demand, according to the report.

Demand will average 85.3 million barrels a day next year, down 0.6 percent from 2008. Oil demand this year is set to decline 0.3 percent from last year, to 85.8 million barrels.

CGES forecasts the average oil price will fall to $41 next year from $97.30 this year.

To contact the reporter on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net.