'Oil to post steepest fall since 1981'

Staff & news wires

World oil demand this year will post the sharpest annual decline since 1981 as the global economy struggles to bounce back, the International Energy Agency (IEA) said in a report published today.

Demand will contract by 2.56 million barrels per day this year, the IEA, which advises 28 industrialised countries, said in a monthly report. It previously forecast demand would fall by 2.4 million bpd this year.

Oil market fundamentals remained weak and a rise in oil prices, which hit $60 a barrel for the first time in six months on Tuesday, was due to sentiment rather than evidence of higher consumption, the agency said. "The oil price seems to have moved a bit higher in the past month largely on the basis of equity markets and sentiment about potential economic recovery,"

David Fyfe, head of the IEA's Oil Industry & Markets Division, told Reuters. "But we're not seeing it in terms of the preliminary demand data for early 2009." The IEA's forecast follows a lower demand projection from Opec yesterday. The IEA also said Opec was pumping more oil, a sign higher prices are prompting members to relax adherence to agreed output curbs.

"The report is commensurate with the depth of economic contraction we are currently experiencing," said Harry Tchilingruian, senior oil analyst at BNP Paribas. "Our view is that positive growth will emerge for the major economies in mid-2010 and on that basis the IEA's bearish report is not surprising."

World oil demand this year is expected to average 83.2 million bpd, the IEA said. Its forecast is significantly lower than the 84.03 million bpd expected by Opec, which issued its Monthly Oil Market Report yeterday. As demand slowed, the IEA raised its forecast for supply from non-Opec countries by 50,000 bpd due to stable North Sea production and higher-than-expected output data from Russia. Total non-Opec supply was forecast to fall to 50.3 million bpd, from 50.6 million bpd in 2008.

Opec has promised to cut oil supply by 4.2 million bpd, equal to about 5% of daily world demand, from its output levels since September to try to support prices. The IEA's report said Opec relaxed its level of adherence to supply targets in April after several months of lowering supplies.

Opec's report also admitted that compliance had slipped. Opec's 11 members with output targets in April raised output by 230,000 bpd to 25.8 million bpd, according to the IEA. That reduced its compliance with the cutbacks to 78% from 83% in March. Opec meets in Vienna on 28 May to set supply policy and the IEA said waning compliance, plus Angola's request for an exemption from the group's output limits, could make any further cut in the overall supply target difficult. The agency said oil inventories in developed countries have risen again and at the end of March equalled 62.4 days of forward demand, a measure closely watched by Opec, which considers around 52 days comfortable.

The March figure is the highest since 1993, although Fyfe added "absolute stock levels" arguably provided a more representative view of the market because the demand figure has been cut so deeply. A rise in the amount of crude oil and refined products stored on tankers at sea potentially adds two to three days to total forward demand cover, the IEA said. ------------------------------------...

Thursday, 14 May, 2009, 08:56 GMT