Faltering recovery will curb oil demand

The International Energy Agency predicted a rise in oil demand and revised its figures upwards, but warned of looming economic uncertainty that could curtail growth.

Demand for oil will fall next year if the global economic recovery falters, the world energy monitoring body has warned. The International Energy Agency (IEA) predicted a rise in oil demand and revised its figures upwards but warned of uncertainty. The energy forecasting body's latest Oil Market Report said global demand for crude would reach 86.6 million barrels per day (bpd) this year, increasing to 87.9 million bpd next year, surpassing its previous estimates.

But in the event of a weaker recovery, demand next year is predicted to fall by 1.2 million bpd, erasing almost any increase. "The report concurs with our view that global demand growth is slowing in the key economies, and that doesn't bode well," Sabine Schels, an energy analyst at Bank of America Merrill Lynch, told Reuters. "So the recovery is stalling but it's unlikely that we will get a double-dip recession."

Oil prices reversed their recent climb on the news, with the price of West Texas Crude falling US$1.22 to $79.03 a barrel. The IEA said demand for oil would grow by 1.3 million bpd, 50,000 more than was forecast in its report last month. "Global economic activity is seen expanding by 4.5 per cent this year but remains capped at 4.3 per cent next year," said yesterday's report. "However, concerns the global economic recovery may falter from the second half of 2010 pose a significant downward risk to the forecast. "In sum, the short-term global economic outlook is highly uncertain, presenting significant downside risks to future oil demand growth. A bullish assessment, expecting global economic activity to be sustained in 2011, suggests that oil demand growth will be relatively strong next year. "Conversely, a bearish view featuring a marked slowdown in global economic conditions would result in much weaker oil demand growth." The IEA raised its forecasts in response to stronger than expected US production figures and increased Chinese oil supply in the second half of this year. The IEA's forecast echoes that of the US-based Energy Information Administration, which projected global oil consumption would grow by another 1.5 million bpd next year in its most recent report, released on Tuesday. That report predicted West Texas Intermediate crude would average $81 a barrel in the fourth quarter of this year and $84 a barrel next year. @EMail:[e-mail]