Oil Use to Fall for Second Year in 2009, Louis Capital Says

By Margot Habiby

Jan. 14 (Bloomberg) -- Oil demand will contract for a second year in 2009 amid weakening global economies, according to a Louis Capital Markets LP forecast today.

Consumption will probably be 85.08 million barrels a day this year, down 350,000 barrels a day from a 2008 estimate by the International Energy Agency, said analysts led by Edward L. Morse, LCM’s chief economist.

The decline “will almost certainly continue through 2009, and the most likely case for 2010 will be modest demand growth,” the analysts said in the report. “This is based on the view that the spreading global recession is likely to deepen, globally, through the first three quarters of 2009 and rebound only in the winter of 2009-2010.”

The forecast is based on an assumption that the International Monetary Fund will lower its world economic outlook, the Organization for Economic Cooperation and Development economies will contract by about 1 percent, and that world economic growth will be 2 percent “at best.”

The IEA, an adviser to 28 nations, trimmed its world demand forecast for 2009 by 260,000 barrels a day in its monthly oil market report on Dec. 11.

“We believe that the IEA will continue to shave its demand outlook as the year progresses,” the analysts said in the report, dated Jan. 12, and released today. The next monthly report from the IEA is scheduled to be released Jan. 16.

LCM forecasts 2009 OECD demand of 46.33 million barrels a day and non-OECD demand of 38.75 million barrels a day. That compares with IEA forecasts for 46.9 million barrels a day from OECD countries and 39.4 million barrels a day from outside the OECD.

Production Cuts

LCM also expects that OPEC production cuts will eventually bolster prices for crude, though “seasonal factors” will mitigate their effect until the end of the second quarter.

The OPEC cuts, along with lower demand and growth in output capability, may boost the organization’s spare capacity above 4 million barrels a day for the first time since 2002, the analysts said. The figure could top 5 million barrels a day.

“It is clear that until a substantial rebound takes place in global economic growth and spare capacity is again eroded, the new supply conditions should weigh heavily on prices,” the analysts said in the report.

The LCM analysts forecast that the spare production would put a “cap” of $65 to $75 a barrel on oil prices, which may continue through 2010. Once prices reach that level, OPEC members may be tempted to stop abiding by production limits, they said.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.