Economic slowdown cuts oil demand

Global demand for oil will be lower than expected this year and next because of the economic slowdown, the International Energy Agency said on Tuesday, saying the situation could get worse. The IEA cut its estimate for this year by 200,000 barrels per day and by twice as much, 400,000 barrels per day, for next year. This meant that demand was set to total 89.3 million barrels per day this year marking an increase of 1.2 percent from demand last year, and 90.7 mbd in 2012, an increase from this year's level of 1.6 percent. But the IEA also highlighted a "paradox" in the demand-price relationship. "Market observers are puzzling over the 'paradox' of weakening economic growth and oil demand indicators on the one hand, and $110 per barrel (of) crude on the other," it said in its monthly report. The price of North Sea Brent quality crude had ranged between $105 and $120 per barrel since May. The release of IEA strategic oil stocks in response to a shortage of supplies from Libya, and a stock market plunge in August, had each caused the oil price to plunge by about $10 dollars a barrel. "But prices have stubbornly reclaimed lost ground again within weeks, raising anew questions about the key drivers of prices," the IEA commented. However, "there are certainly growing concerns about the health of the global economy." The IEA said this meant it was trimming its estimate for growth of demand for oil to 1.0 million barrels per day this year and 1.4 mbd next year. But the agency also referred to its previous medium-term outlook estimates in which it had predicated two backdrops for economic growth. Now it, said, if its lower picture for growth were to materialise, with growth being one third lower than under the stronger forecast, "oil demand growth slips to a much weaker 0.7 mbd and 0.4 mbd in 2011 and 2012 respectively." The agency also estimated that underlying demand for OPEC oil and changes in inventories for the third quarter was 31.3 mbd, and was set to be 30.0-30.5 mbd for the next three quarters. This was close to OPEC output levels. "That suggests that the recent spell of market tightening could moderate in the short term, assuming that recent supply disruptions also recede." News that oil production had been resumed in Libya was "most welcome" even though full operational recovery would take time. Overall, in the absence of new demand and supply surprises, the way could be open to "a more comfortable market balance," the IEA said.