IEA sees 28-year record drop in demand for oil

PARIS — The International Energy Agency forecast on Thursday a 28-year record annual drop in global oil demand, saying optimism for economic recovery was not yet reviving appetite for the crucial commodity. The agency further trimmed its forecast for 2009, which it estimated at 83.2 million barrels per day (bpd), three percent lower than last year, “and the sharpest single year’s fall since 1981,” in its monthly oil market report.

Last month it had estimated 2009 demand at 83.4 million bpd.

“Forecast global oil demand for 2009 has been revised down slightly (since last month) following weaker-than-expected preliminary data in various regions” such as the United States, China and Russia, the IEA said.

“Preliminary data for early 2009 suggest little upside for now in our demand assessment,” despite signs of green shoots of recovery in the global economy.

“These ‘green shoots’… may be interpreted as proof that the global recession has bottomed out,” the IEA said.

But it added that an upturn in economic activity could be due merely to companies building up their inventories of goods again after a slump in production.

The IEA is the oil monitoring and policy arm of the Paris-based Organisation for Economic Cooperation and Development. Oil is regarded as strong barometer of economic activity because it is vital to most economic activity.

The agency observed: “As far as oil is concerned, the latest available data indicate that the ‘demand green shoots’, if any, continue to be buried under the thick ice of the current economic winter.”

Despite oil prices strengthening to six-month high points around 60 U.S. dollars this month, “new bullish macroeconomic sentiment has not yet produced signs of oil demand recovery and oil market fundamentals remain weak,” it said.

According to the IEA’s latest data, demand for oil products plunged by 5.9 percent in North America and 7.6 percent in Asia, on a 12-month comparison in March. The fall in Europe was a “relatively modest” 0.3 percent.

The agency based its estimates on a forecast that the world economy would contract by 1.4 percent this year.

Its latest data showed the supply of oil rising in April by 230,000 barrels per day to 83.6 million owing to a rise in production by member of the OPEC cartel of leading oil producers.

OPEC last year agreed to a series of production cuts to prop up the price of oil which had declined from a peak around US$147 per barrel last summer.

The IEA said OPEC members had enacted nearly 80 percent of the cuts, but compliance dipped slightly last month.

“Market reports abound suggesting disquiet among core OPEC members over the degree of compliance by Iran and Angola in particular,” the report said.

“Recent market chatter… suggests that fraying compliance, and the fact that prices are now 50 percent higher than February lows, could argue against a further official cut in (production) target” at OPEC’s next meeting on May 28.

Oil prices slipped in Asian trading on Thursday after a plunge in U.S. stocks and weak retail sales. New York’s main futures contract, light sweet crude for June delivery, was down 33 cents to 57.69 U.S. dollars a barrel in afternoon trade.

Broadly, “oil markets continue to defy gravity,” the IEA said.

“Oil futures moved higher in tandem with stronger global financial and equity markets, which for the time being appear to amplify any good global economic developments while muting the negative.”