Growth in world oil consumption will slow by a quarter next year, holding down prices but extending the period of relative stability the market has enjoyed for 14 months, an official forecast says. World oil demand will rise by 1.3 million barrels per day (bpd) next year, or 1.6 per cent, said the International Energy Agency (IEA), a group of energy-importing nations, in its first projection for next year. The IEA predicts growth in consumption of 2.1 per cent for this year.
"In short, markets in 2011 may prove 'not too hot, not too cold'," the IEA said. "We might, just might, be in for some market stability for a while longer." US crude oil has mostly traded between US$65 and $80 a barrel since May last year, a range major OPEC producers including Saudi Arabia have deemed acceptable. Many experts say a ceiling was created by the huge amount of capacity OPEC has left idle since last year and could call on quickly if there were a shortage of supplies.
But steadily increasing demand for oil in developing countries has established a floor for prices. The global need for oil will slow next year as governments across the world withdraw stimulus programmes that accelerated the economic recovery, the IEA said. In particular, consumption growth is expected to slow to 4.8 per cent in China. China accounted for nearly half of the growth in oil demand this year as it recorded consumption growth of 9.1 per cent.
A continuing 0.5 per cent reduction in oil use in industrialised countries, which are steadily improving car fuel efficiency and closing energy-intensive factories, will also push down global oil demand growth, the agency said. "North America will cease to act as an engine of demand growth in the OECD as the 2010 economic rebound, fuelled by government spending and privatesector restocking, fades."
If the world returns to recession this year, growth would be sharply lower, at 1.1 per cent, the IEA emphasised. The relative stability of the market will keep prices trading at an average of below $80 a barrel next year, predicted John Hall, the chairman of the consultancy Energy Quote. Prices will be "a few dollars" above the $74 to $76 range he predicts for this year. "In the short term, there's really nothing happening. There's nothing to bother about," Mr Hall said.
"What the market is looking at is what may be happening in six to eight years" when demand again begins to outstrip supply. cstanton@thenational.ae