The Paris-based adviser to 28 industrialised nations also said there was a chance of an extended contraction in demand that could hold oil prices in check.
World oil demand forecast cut
The International Energy Agency (IEA) has sharply cut its five-year oil demand forecast, predicting global consumption will not rebound to last year's level until 2012. The Paris-based energy adviser to 28 industrialised nations also said there was a chance of an extended contraction in demand, and backed away from its previous predictions of another oil price spike within two to three years. Based on the IMF's projection of world GDP growth recovering to 5 per cent annually by 2012, the IEA predicted oil demand would climb on average by 0.6 per cent annually, or 540,000 barrels per day (bpd), until 2014, reaching nearly 89 million bpd by then. Last December, it forecast annual demand growth of 1 million bpd until 2013. Due to the recent economic slump, the IEA expects global oil demand to average 83.2 million bpd this year, down from 85.8 million bpd last year. In its latest medium-term oil market report released yesterday, the agency also presented a scenario based on 3 per cent GDP growth by 2012, which it said many economists considered more probable. Under that scenario, oil demand could contract by 140,000 bpd annually until 2015, keeping prices low. "The lower GDP scenario presents a picture at odds with our erstwhile message on impending supply tightness, at least for the period considered. However, the possibility that global economic growth will remain below recent historical trend levels cannot easily be discounted," the IEA said. Under its higher growth scenario, the oil market would tighten significantly after 2012 as OPEC spare capacity fell, the agency predicted. "Relative to the medium-term profiles presented in previous years, this scenario paints a delayed picture of threatened supply crunch," it said. David Fyfe, the editor of the report, declined to predict which of the divergent forecasts would occur. "I don't think anyone out there has a clear idea which of the two paths we're likely to follow in the future, so we make no apology for going with a two-scenario approach." The IEA also warned its assumptions about future energy efficiency improvements might be too timid, which could lead to further downwards revisions to its oil demand outlook. "This report tends to the view that significant demand destruction, as opposed to demand suppression, may already have occurred," it said. China and other countries outside the Organisation for Economic Co-operation and Development would continue to drive growth in world oil consumption, while oil demand in developed economies would keep falling, the IEA predicted. But even China is getting more serious about curbing wasteful energy consumption, and has taken steps to start phasing out fuel subsidies and introduce stricter efficiency standards for vehicles. The IEA released its report as Japan's two biggest oil refiners, Nippon Oil and Idemitsu Kosan, said they would process less crude and might consider shutting some units as the recession drags on in the world's second-largest economy. "We haven't seen any recovery signs," said Masahito Nakamura, the director of Nippon Oil. The IEA projected weak refining margins for the next five years, with tighter environmental regulations crimping profits. Its concerns about future oil supply have not evaporated. "The industry's ability to expand capacity, already constrained after several years of creeping resource nationalism, rising costs, industrial bottlenecks and chronic project delays, is now further impeded with sharp reduction in planned upstream spending." email@example.com