LONDON - World oil demand will contract this year by the most since 1982 due to extreme weakness in the global economy, the International Energy Agency (IEA) said on Wednesday.
The Paris-based agency also said supply will be lower than previously expected this year, risking a new price surge when demand recovers which could disrupt the world economy.
Global demand is expected to fall by 980,000 barrels per day (bpd) to 84.7 million bpd in 2009, the IEA said in its monthly oil report. Its forecast last month was for demand to contract by 500,000 bpd.
The forecast adds to evidence that the financial crisis is sharply eroding fuel use. The IEA, which advises 28 industrialized countries, said the latest reduction to demand may not be the last.
"The bottom line is that 2009 looks like a pretty weak year," David Fyfe, head of the IEA's Oil Industry and Markets Division, told Reuters.
"It's far too early to say if this is the end of the downward demand revisions because the financial and economic spillover is still unfolding. We're hostage to any further weakening in the overall economy."
The IEA has removed 3 million bpd from its forecast for 2009 demand since last summer, when oil prices hit a record high of $147.27 a barrel. They have since plunged to below $40 as the economic crisis deepened and widened.
It revised this year's oil demand forecast lower after the International Monetary Fund cut its estimate for global GDP growth in 2009 to just 0.5 percent.
"The continued -- and dramatic -- revisions of the past few months underscore the extreme weakness of the global economy," it said.
Oil prices pared gains after the IEA report was issued. U.S. crude was up 49 cents at $38.04 a barrel as of 1328 GMT (8:28 a.m. EST).
SUPPLY IMPACT
The IEA also said that future oil supply growth has come under threat from the collapse in prices.
"Hand in hand with the downward revisions in demand is the impact on supply," Fyfe said. "The trend now is that downside demand revisions are being matched on the supply side."
Since oil fell from its peak last summer, the IEA has reduced its estimate of potential supply in 2009 from OPEC members and other countries by 1 million bpd.
Members of the Organization of the Petroleum Exporting Countries (OPEC) have delayed 35 new oil projects, the producer group's secretary general said on Monday, in response to lower prices and falling demand.
The IEA said only clear signs of an economic recovery would spur investment in new supply and a large cutback in spending at the moment could have dire consequences later on.
"The danger is that if too much investment slips now, the scale of the price response to resurgent demand could again destabilize the global economy."
As demand has fallen, oil inventories in Organization for Economic Co-operation and Development (OECD) countries have risen to high levels.
Stocks at the end of December stood at 57 days of demand cover, compared with 52.5 days at the same time the previous year, the IEA said.
OPEC has agreed to remove 4.2 million bpd of oil output in a bid to balance the market and shore up prices, but questions remain about some members' compliance with output targets.
The IEA said if OPEC successfully implemented all of the output cuts, supplies would be 1.5 million bpd below its estimate of demand for the producer group's oil in 2009.
"This implies a substantial draw in stocks later in the year unless demand again trends weaker, or non-OPEC supplies prove stronger than expected," the IEA said.
The Paris-based agency also said supply will be lower than previously expected this year, risking a new price surge when demand recovers which could disrupt the world economy.
Global demand is expected to fall by 980,000 barrels per day (bpd) to 84.7 million bpd in 2009, the IEA said in its monthly oil report. Its forecast last month was for demand to contract by 500,000 bpd.
The forecast adds to evidence that the financial crisis is sharply eroding fuel use. The IEA, which advises 28 industrialized countries, said the latest reduction to demand may not be the last.
"The bottom line is that 2009 looks like a pretty weak year," David Fyfe, head of the IEA's Oil Industry and Markets Division, told Reuters.
"It's far too early to say if this is the end of the downward demand revisions because the financial and economic spillover is still unfolding. We're hostage to any further weakening in the overall economy."
The IEA has removed 3 million bpd from its forecast for 2009 demand since last summer, when oil prices hit a record high of $147.27 a barrel. They have since plunged to below $40 as the economic crisis deepened and widened.
It revised this year's oil demand forecast lower after the International Monetary Fund cut its estimate for global GDP growth in 2009 to just 0.5 percent.
"The continued -- and dramatic -- revisions of the past few months underscore the extreme weakness of the global economy," it said.
Oil prices pared gains after the IEA report was issued. U.S. crude was up 49 cents at $38.04 a barrel as of 1328 GMT (8:28 a.m. EST).
SUPPLY IMPACT
The IEA also said that future oil supply growth has come under threat from the collapse in prices.
"Hand in hand with the downward revisions in demand is the impact on supply," Fyfe said. "The trend now is that downside demand revisions are being matched on the supply side."
Since oil fell from its peak last summer, the IEA has reduced its estimate of potential supply in 2009 from OPEC members and other countries by 1 million bpd.
Members of the Organization of the Petroleum Exporting Countries (OPEC) have delayed 35 new oil projects, the producer group's secretary general said on Monday, in response to lower prices and falling demand.
The IEA said only clear signs of an economic recovery would spur investment in new supply and a large cutback in spending at the moment could have dire consequences later on.
"The danger is that if too much investment slips now, the scale of the price response to resurgent demand could again destabilize the global economy."
As demand has fallen, oil inventories in Organization for Economic Co-operation and Development (OECD) countries have risen to high levels.
Stocks at the end of December stood at 57 days of demand cover, compared with 52.5 days at the same time the previous year, the IEA said.
OPEC has agreed to remove 4.2 million bpd of oil output in a bid to balance the market and shore up prices, but questions remain about some members' compliance with output targets.
The IEA said if OPEC successfully implemented all of the output cuts, supplies would be 1.5 million bpd below its estimate of demand for the producer group's oil in 2009.
"This implies a substantial draw in stocks later in the year unless demand again trends weaker, or non-OPEC supplies prove stronger than expected," the IEA said.
