IEA Cuts 2008 Oil Demand Growth Forecast

World oil demand growth this year will be lower than previously forecast and could fall further if an economic slowdown in top consumer the United States accelerates, the International Energy Agency said on Wednesday.

Oil Pump
Oil Pump

The adviser to 27 industrialized countries in its monthly Oil Market Report cut its world oil demand growth forecast to 1.98 million barrels per day (bpd), down 130,000 bpd from its forecast last month.

The Paris-based agency said while its new forecast reflected a downward revision to oil demand in developed economies partly offset by upward revisions in others, it had yet to assume a "significant slowdown" in the United States and other economies.

Fears are growing the United States, the world's biggest economy, is slipping into a recession, which could drag economic growth in other countries lower, curbing global oil demand.

"If gross domestic product growth does fall, that can pose a downside risk to forecasts," Lawrence Eagles, head of the IEA's Oil Industry and Markets division, told Reuters.

Analysts said the IEA's report was bearish, and oil fell $1.07 to $90.83.

"That was more than just a revision," said Mike Wittner, global head of oil market research at Societe Generale.

"I think prices are going to fall further...I think prices will fall into the mid-$80's. It is just $5 away."

Crude hit a record high of $100.09 earlier this month, but has since eased amid U.S. recession concerns.

Inventory Fall

The jump in prices in part reflects falling inventories, the IEA said.

Total oil stockpiles in member countries of the Organization for Economic Co-operation and Development have slipped further below the five-year average, a sign of a tightening market, the agency said.

Stockpiles fell by 38.1 million barrels in November last year, extending the move below the five-year average and equaling 51 days of forward cover, or future demand.

"It shows that over the past five months, the oil market has tightened. There's no doubt about that,... In terms of forward cover, we're at the lowest since November 2003," Eagles said.

In last month's report, the IEA had raised its forecasts for oil demand growth for 2008 to 2.1 million barrels per day, fuelled notably by strong growth in the Middle East.

The IEA's concern about tightening stockpiles come ahead of an OPEC meeting next month in which the producer group could consider consumers' calls to pump more oil.

OPEC, at a meeting in December, decided leave oil supply unchanged, rebuffing calls for more oil. It last agreed to raise supply at a previous meeting in September.

The IEA's report stopped short of urging OPEC to raise output further. For much of last year, the agency was calling on the group to pump more oil.

On Wednesday, OPEC Secretary-General Abdullah al-Badri said he did not consider world oil inventories to be low but said the producer group stood ready to raise production if justified by fundamentals.