IEA Trims Oil Demand Outlook

On Monday, June 29, Paris-based International Energy Agency (IEA) reduced its 5-year world oil demand outlook, citing the impact of the ongoing economic slump. In a report, the energy-monitoring body of 28 industrialized countries estimated that global oil demand would rise by a meager 0.6% (or 540,000 barrels per day) annually between 2008 and 2014, reaching 89 million barrels a day in 2014 from last year’s 85.8 million barrels a day. IEA’s latest medium-term report is based on expectations of a 5% annual economic growth from 2012 onwards by the International Monetary Fund.

The energy agency’s previous forecast, issued in December 2008, predicted annual growth of 1.6% (or 1 million barrels per day). In its ‘lower GDP scenario’, which assumes that a rebound in the global economy will be restricted to 3% a year, IEA sees oil demand contract at 0.2% on a yearly basis to average 84.9 million barrels a day in 2014. However, irrespective of the recovery scenario, the report said that growth in oil demand over the forecast period will be driven by non-OECD countries, with oil consumption declining in OECD countries (an organization of developed countries).

The IEA warned that demand can contract even more depending on the pace of the global economic recovery from the worst recession in over 50 years. The economic crisis has crippled oil demand in developed economies and slowed growth in China and India. According to the agency, there is also the looming possibility of a supply crunch as recession forces companies to cut their E&P capital expenditures and defer new projects. As new oil projects are put on the backburner, the IEA estimates global oil capacity to go up by 4.2 million barrels a day by 2014, as against its previous estimate of 5.5 million barrels a day.

The agency also cut its supply forecasts and now expects output from non-OPEC countries to drop 400,000 barrels a day in the 2008-2014 period (in particular from Mexico and Russia), compared with a previous forecast of an increase of 1.5 million barrels a day. IEA said that the current rally in commodity prices (oil prices have recovered from a low of $32.40 per barrel in December 2008 to the current level of roughly $70 per barrel) could further damage the nascent economic recovery.

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