The International Energy Agency has modestly revised down its oil product demand forecasts for both 2007 and 2008, citing doubts over the growth prospects of the US economy, mild weather, and the high price of crude.
As a consequence, the IEA has trimmed its forecast call on OPEC crude by 0.2-0.3 million barrels per day in the second half of 2007 and 2008, and may cut its demand outlook further, it said in its monthly oil market report.
Global oil product demand in 2007 is now seen at 85.9 million barrels per day, against a previous forecast of 86.0 million bpd. In 2008, demand is now seen at 88.0 million bpd, against 88.2 million bpd previously forecast.
Further cuts to the 2008 demand forecast may be necessary when the extent of the global credit crunch that followed the crisis in the US sub-prime mortgage sector becomes clearer, it said.
"The forecast ... incorporates a preliminary adjustment of economic growth prospects in the United States," said the IEA.
While the potential spill-over effects of the sub-prime crisis have yet to be properly assessed, it said, "it is likely that credit conditions in the U.S. and other developed countries will tighten. As such, we may further revise our 2008 forecasts as events unfold."
"For oil, the degree to which it affects the three key growth regions, North America, the Middle East or China, will be paramount," it added. "Until a clearer path emerges, we have only made a modest adjustment to oil demand growth for the rest of this year and 2008."
Slowing demand is chiefly a factor in OECD countries, the IEA said, with the 2007 figure affected by lower fuel oil and heating oil deliveries in June and July, chiefly in Europe and the Pacific, which offset healthy demand earlier in the year.
However, continued strong demand in non-OECD countries, especially China and the Middle East, is buoying the global figure.
"As such, if sub-prime woes are limited purely to the OECD, global demand would likely remain robust," the agency noted.
The revisions to demand data this year have also been influenced by mild weather and fuel substitutions, with the elevated price of crude oil, which remains near record highs, an additional factor.
On the supply side, the IEA said it has slightly revised up its 2008 forecasts for non-OPEC supply – 45% of which was provided by Russia and the Caspian states -- by 100,000 barrels to 51.1 million bpd.
OPEC capacity meanwhile is expected to rise to 34.5 million bpd by the end of the year from 34.2 million bpd currently.
The cartel said at its production meeting yesterday that it planned to raise production by 500,000 bpd to counteract sharply rising prices, and its quotas by 1.4 million bpd to 27.2 million bpd from 25.8 million bpd.