Oil suppliers face first drop in demand

Ed Crooks in London

Published: November 7 2008

Global demand for oil will fall next year for the first time since 1983, a leading consultancy has forecast.

Wood Mackenzie said it expected a drop of about 250,000 barrels per day – about 0.3 per cent – in oil consumption next year as the downturn deepened in developed countries and spread to the emerging economies that have been the main source of demand growth in recent years. Ann-Louise Hittle, of Wood Mackenzie, said falling demand would mean oil prices would be “relatively weak” next year, although production cuts from Opec, the oil producers’ cartel, would prevent a “collapse” to about $30-$40 per barrel.

Fears about weak demand hit the oil market again on Thursday, sending the price of US crude down by about $4 a barrel to an 18-month low of about $61.

The decline in oil demand in developed countries has been accelerating this year, but until now that has been masked by steady growth in emerging economies.

However, evidence of a slowdown in China, the world’s second-biggest consumer of oil, is now accumulating.

Wood Mackenzie has also cut its forecast of world oil supply as a result of the financial crisis. It expects the credit crunch to hit investment in short-term developments that would have delivered extra oil supplies next year, particularly in Russia and the US.

Russia’s oil production is now expected to decline next year and in 2010. But net production from non-Opec countries is still expected to rise, with higher output in Brazil, the Caspian region, the Gulf of Mexico and Canada’s oil sands.

That means Opec will have to curb its output to avoid substantial over-supply, and Ms Mittle said she expected a steep rise in the cartel’s margin of unused capacity to about 5m b/d next year.

The International Energy Agency, the rich countries’ energy watchdog, has predicted in its World Energy Outlook – to be published in full next week but obtained in summary by the Financial Times this week – that oil would rebound to more than $100 a barrel as soon as the world economy recovered.

Copyright The Financial Times Limited 2008

Comment: Geo-politically this means what? The West has an opportunity to ...I suspect we will retreat to our comfortable old policies re: energy. the sense of urgency when oil was $100 and above is not longer the motivating force and Westerners will breathe a sigh of relief. will we understand we have been given an opportunity to move forward at reduced cost toward energy independence? Watch for the leadership's response the first 100 days of President Obama's term. Pay attention to the Saudi pressure and the call by OPEC to reduce output. The game is afoot.