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PARIS: Approaching recession and a banking cash crisis are cutting into global demand for oil and may set back investment in new oilfields, the International Energy Agency said on Friday.
Falling demand in advanced countries "in the face of higher prices is now being perpetuated by weakening economic prospects," the IEA said.
This "maelstrom" was causing "havoc" on oil markets, and had led it to make "significant" downward revisions.
The economic downturn, together with "a spiralling liquidity crisis", could tip leading industrialised economies "into outright recession", the agency forecast in its monthly oil market analysis.
But "no-one can foresee the ferocity or duration of the current economic tempest, nor whether full-blown recession will be avoided," it said. "The question is whether emerging markets will be affected."
The IEA's oil demand estimates now "show sustained decline from the OECD, but a degree of resilience for developing economies".
However, "we have yet to see unambiguous evidence of a sharp slow-down from China", and demand in the Middle East remained robust.
Overall world demand this year would be 86.5 million barrels per day – a reduction of 240,000 barrels from the previous estimate, to show a rise of 0.5 percent from last year.
The world forecast for next year was cut by 440,000 barrels per day to 87.2 million barrels per day, showing an annual increase of 0.8 percent. These are far smaller annual increases than the oil market has seen in the last few years.
Meanwhile, credit restrictions were "curbing liquidity in oil markets", adding to price volatility. Several investment banks, recently taken over, had been active in commodity markets and "may have been forced to liquidate positions."
Oil prices have fallen heavily in recent months, and the IEA gave figures showing this had occurred despite sharp falls in global supplies, by more than a million barrels per day in September, as in August, to 85.6 million barrels per day. This was mainly because of production stoppages caused by hurricanes in the Gulf of Mexico, and other production problems.
OPEC production had fallen by 300,000 barrels per day in September from the August figure to 32.3 million barrels per day.
OPEC decided on September 9 to trim its output, but the IEA said the reduction in its September production had been "driven more by unplanned supply outages". There was no "firm evidence" that Saudi Arabia had changed its output much.
The oil price fell by 4.08 dollars to 82.51 dollars in Singapore on Friday, after the Organization of Petroleum Exporting Countries (OPEC) had said it would meet on November 18 to discuss the crisis and the oil market. Some analysts said the price fall might push OPEC to reduce output.
The IEA said that US oil demand "shrank by 3.7 percent year-on-year in August... for the eighth month in a row," and would contract by up to 4.6 percent this year. If the crisis eased, demand next year would fall by 1.7 percent.
Under the headline "When storms collide", the agency said the sharply weaker oil price was volatile because of two storms – hurricanes in the Mexican Gulf and the firestorm on financial markets.
Uncertainty, and "tightening credit and equity markets will slow the pace of investment," the report warned. "Investment is already being affected at a number of highly leveraged (indebted) companies in locations such as Russia and the Caspian."
Ambitious expansion plans, "for national champions like Brazil's Petrobras, which will need upwards of 500 billion dollars (368 billion euros)", could be further delayed. "Some analysts envisage a sizeable proportion of current global drilling rig orders will be cancelled."
The agency, an offshoot of the OECD, cut its forecast for OECD demand this year by about 360,000 barrels per day from its previous, falling, forecasts.
This put total OECD demand this year at 48.1 million barrels per day, 1.1. million barrels per day or 2.2 percent less than the 2007 level.
And it cut its forecast for OECD demand next year also by about 360,000 barrels per day to 47.5 million bpd. This implied a fall of 600,000 bpd, or 1.3 percent, from demand in 2008.
But the agency raised slightly its previous forecast for demand outside the 30 countries in the Organisation for Economic Cooperation and Development because of "stronger-than-expected demand in almost all regions".
This section of demand would be 80,000 barrels per day higher than forecast last month. It would now total 38.4 million barrels this year – an increase of 1.5 million barrels per day or 4.2 percent from the 2007 level.
Next year, this demand would amount to 39.7 million barrels per day, an increase of 1.3 million barrels per day or 3.4 percent from the 2008 figure, and an upward revision of 40,000 barrels per day.
- AFP/so
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