OPEC Sees Prolonged Weakness in Demand for Oil

World demand for OPEC's oil may take years to recover from the slump in 2009 because of economic weakness and demand destruction, the group said on Wednesday, justifying its slower spending on new supplies.

In its 2009 World Oil Outlook, the Organization of the Petroleum Exporting Countries said consumption of its crude would not return to 31 million barrels per day (bpd), the level it averaged in 2008, until 2013.

"We have this recession and the financial crisis going on so this has really affected demand," OPEC Secretary General Abdullah al-Badri told a news conference at the group's Vienna headquarters.

"I hope this will bottom out in 2009," he said, "and then the demand will pick up afterward."

The 12-member exporter group joins other forecasters, such as the International Energy Agency, in predicting lower long-term demand.

OPEC also said it needed to spend less on developing new supplies, a prospect that may dismay oil consumers.

Oil hit a record high near $150 a barrel in July 2008, the day after OPEC issued its last report. It collapsed to $32.40 by December and is now trading around $62, boosted from its low in part by OPEC supply cuts agreed last year.

In its 277-page report, OPEC predicted world oil demand would rise much more slowly than previously expected over the medium and longer term, although supplies would also be lower.

By 2030, OPEC expects world consumption to reach 105.6 million bpd, a reduction of 7.7 million bpd — roughly equal to current demand in China, the second-largest oil consumer.

In the medium term, consumption will fall to 84.2 million bpd this year from 85.6 million bpd last year, and rise to 87.9 million bpd by 2013. The 2013 figure is 5.7 million bpd less than previously expected.

"The high prices observed in 2008 led undoubtedly to some demand destruction, and this has been factored into short-term figures," the report said.

This year's "reference scenario" is based on the assumption the economy will have hit the bottom by the end of 2009 and begin to recover next year.

Growth would gain momentum in 2011 and by 2012 would be "back to trend values," OPEC said.

Oil traded lower on Wednesday. U.S. crude was trading below $62 a barrel.

Investment Cutbacks

Slower growth in demand and the steep collapse in oil prices from last year's record meant OPEC needed to spend less on developing new oilfields, the report said.

AP

Members have delayed or postponed more than 35 projects, representing about 5 million bpd of oil capacity, until after 2013.

OPEC said it needed to invest $110 billion to $120 billion versus $165 billion previously thought.

"It is understandable that any country or investor would be unwilling to invest in capacity that is not needed, especially when they are affected by the global financial and economic crisis," the report said.

The IEA, which represents 28 industrialized countries, has repeatedly said inadequate investment could lead to a shortfall in energy supplies, which could force energy prices higher and damage any economic recovery.

Last month, the IEA said in its own Medium-Term Oil Market Report looking out to 2014 that the threat of a supply crunch had only been delayed, not averted, by the collapse in demand.

OPEC in its report also lowered its forecast for supplies from producers outside the group, partly because of lower prices and credit difficulties. It expects non-OPEC crude plus natural gas liquids supplies to stay flat to 2013, when they will reach 45.1 million bpd.

The report said 2013 non-OPEC crude and NGL supply will be more than 3 million bpd less than expected last year.

Under all scenarios, OPEC predicts rising energy use, led by developing countries, where consumption will increase by 23 million bpd over the period 2008-2030 to reach 56 million bpd.

Per capita use will still lag that in the developed world, where energy use is stagnant.

Oil consumption by countries of the Organisation of Economic Cooperation and Development will fall from 47.5 million bpd in 2008 to 45.5 million bpd in 2010 and will remain at that level to 2013.

Renewables are expected to grow fast but from a low base and nuclear is seen expanding more quickly than in the previous outlook. Fossil fuels are still seen contributing 80 percent of the global energy mix and oil will continue to play "the leading role" until 2030.

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