Energy agency cuts oil demand forecast

Energy agency cuts oil demand forecast

Tuesday, October 14, 2014 11:18 am

Falling oil prices could soon be matched by a slowing of supplies, the IEA warned on Tuesday, lowering again its demand outlook because of weak growth of the global economy.

Although the speed of slowing oil demand was a “surprise”, a “staggering” increase in supplies was a bigger factor behind the fall of prices and rise of stock-building, the International Energy Agency said in its October report.

oil rig in Tioga, North Dakota, USA

oil rig in Tioga, North Dakota, USA

The IEA again cut its forecasts for growth of global oil demand for the third month in a row.

For this year, it expects demand to rise by 700,000 barrels per day to 92.4 million barrels per day which is 200,000 bd less than the previous forecast.

This shrinking demand outlook in European and Asian members of the Organisation for Economic Cooperation and Development matched average growth of 1.0 mbd in countries outside the OECD areas, the IEA said.

The IEA is the oil-policy arm of the OECD which groups 34 advanced economies.

For next year, the agency cut its estimate of global demand from 93.8 mbd to 93.5 mbd.

However, that represents an increase of 1.1 mbd from the level this year because demand will pick up somewhat as the global economy brightens, pulled by emerging economies, the IEA said.

“While the abrupt slowdown in demand growth in the second quarter of 2014 has come as a surprise, supply growth looms larger as a factor behind the recent easing of market balances and OECD stock builds,” the report said.

“It jumped to a staggering 2.8 mbd in September year on year, as OPEC output swung back to growth for the first time in about two years.”

“Abundant” supplies, slowing demand and strength of the dollar had pushed down oil prices for the third month in a row, and the price of Brent oil for October delivery had fallen to less than $90 a barrel in October, the IEA noted.

However, these steep price falls since June, with Brent oil price at four-year lows, “are casting doubt on the sustainability of current high growth rates,” the IEA warned.

The IEA said that “September may turn out to be a high-water mark for supply.”

This was also because growth from outside OPEC was expected to slow in the last quarter of this year, and because political risk to output in Libya and Iraq was “exceptionally high”.

At PVM oil market analysts in London, David Hufton commenting on the IEA report, said: “It makes no sense at all for OPEC members to try and defend price by cutting production only for non-OPEC producers to jump in and grab market share.”

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