OPEC, IEA Cut Forecasts for Oil Demand, Supply Amid Recession

By Alexander Kwiatkowski

March 13 (Bloomberg) -- The International Energy Agency and OPEC cut their 2009 forecasts for oil demand for a seventh month and reduced supply estimates as the global economic slump saps consumption as well as investment in new fields.

Both organizations see demand slumping by more than 1 million barrels a day this year. The Paris-based IEA, adviser to 28 nations, reduced its forecast to 84.4 million barrels a day, a decline of 1.25 million barrels from 2008. OPEC’s estimate dropped to 84.6 million barrels, down 1.01 million barrels.

“The demand collapse has been staggering, based on the whirlwind nature of the slump in the global economy,” the IEA said in its monthly oil report today. The Organization of Petroleum Exporting Countries, which also released its monthly market analysis today, said the “dreadful” economic situation is causing the slide. The two groups usually produce their reports on different days.

OPEC will meet in Vienna on March 15 to review production quotas as oil trades nearly $100 a barrel lower than a record high of $147.27 a barrel in July. The front-month March crude futures contract traded at $47.48 a barrel on the New York Mercantile Exchange at 2:45 p.m. London time.

Members are still implementing cuts agreed last year totaling 4.2 million barrels a day. Efforts to increase prices by cutting more production pose a risk to economic recovery, the IEA’s executive director Nobuo Tanaka said last month.

OPEC rejected the IEA’s argument that cheap oil will rejuvenate the world economy. Instead, lower prices may lead to a supply crunch by 2013, the group’s secretary general, Abdalla el-Badri, said last week. Algeria has said OPEC should agree to new curbs in Vienna, while members such as Qatar and Nigeria said there is no need for further action.

‘Pillars’

The revision in the IEA demand forecast was driven by declines in North America, Asia and the former Soviet Union. OPEC said consumption is also slowing in developing countries, which had previously compensated for declines elsewhere.

China, the Middle East and other developing Asian countries “were the pillars behind last year’s oil demand,” the group said. “However, due to the spillover of the economic downturn, these regions are no longer the initiators of high growth.”

Both groups said declining demand would be partially offset by a drop in supply growth from outside the group, as well as OPEC quota cuts.

The IEA trimmed its forecast for supplies from outside OPEC this year to 50.6 million barrels a day. A lack of available credit to fund investment in new projects and production problems in Azerbaijan mean non-OPEC supply will be unchanged this year, it said.

Outside OPEC

OPEC cut its forecast for oil supply from outside the group to 50.7 million barrels a day. That still leaves an increase of 370,000 barrels a day this year over 2008.

The two organizations also agreed on the degree to which OPEC has implemented previous production cuts.

The 11 OPEC nations bound by production quotas pumped 25.7 million barrels a day last month, the IEA said, compared with their official Jan. 1 limit of 24.845 million a day. That implies the group is complying with 80 percent of its production targets.

OPEC estimates February production by its 11 members excluding Iraq at 25.715 million barrels a day, or 870,000 barrels a day more than its target. That implies compliance of about 79 percent.

If the producer group complies completely with its production cuts, it will be pumping 1.6 million barrels a day below demand for its oil, leading to a potential drop in stockpiles, the IEA said.

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To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net