The slowing world economy has brought another downgrade in estimates of oil use over the next five years; a year after a surge in economic activity produced some gloomy estimates on a likely shortfall.
The new International Energy Agency forecast came as oil prices dropped to four-year lows on markets in Europe and to $US41.81 in New York, the lowest since late 2004.
In London the price of Brent crude fell below $US40 a barrel for the first time since January 2005.
Oil prices suffered their worst week since January 1991, losing more than $US12 in five days.
The oil price fell 25% since the previous Friday November 28.
The IEA lowered its forecast for 2008-2013 annual oil consumption growth to 1.2% a year – or about 1.0 million barrels a day – down from the 1.5 million a day forecast mid year.
The Agency now expects oil demand in 2013 at 91.3 million barrels a day, down 2.9 million bbd from its July’s forecast.
“For the first time since 1945 most OECD countries are expected to face a severe economic recession in 2009,” the IEA said in an update of its Medium-Term Oil Market Report.
It said: “By the same token, emerging economies are bound to slow down, even if managing to maintain positive growth rates" and warned that its forecast could be lowered again, because there is a risk that the slowdown might be more prolonged” and the recovery from 2010 might be later in happening.
The slump in oil sent the Reuters/Jefferies CRB Index of 19 futures down 4.3% on Friday, touching the lowest level since August 2002.
It closed around 208.6 points. Copper dipped under $US3,000 a tonne on Friday as well and is looking to go lower.
US petrol prices fell under $US1 a gallon on Friday, halving in around three weeks or less in some states!
Besides the IEA, the US Energy Department and OPEC have lowered demand forecasts over the past month because of the economic contraction. Analysts at Merrill Lynch reckon there’s a chance oil could hit $US25 a barrel in the next couple of months. Demand from China will influence this forecast.
The terrible jobs figures for November were as much a catalyst for the weakness in global prices. The IEA forecasts merely reflected sentiment (which can turn fairly quickly).
A year ago the IEA was worried about their being too small a gap between the oil producing capacity of the world and global demand by 2013.
That no longer seems a concern.
It should be because if anything the downward pressure on prices will cut development of new oil and gas capacity in coming years.
If you think about it, the IEA forecasts are "bullish" for oil as they reflect not so much a permanent fall in demand but the impact of the recession, which will reverse itself over time.
We should enjoy the cheap petrol while we can, but not return to buying gas guzzlers.
Copper continued to sink, hitting a low of $3,000 a tonne before recovering a touch to end at $3,060 in London, down 6.5% on the day and 15.5% over the week. (It will make for a miserable opening here for BHP and Rio Tinto.)
Copper prices tumbled to the lowest level since mid-2005, on signs of a deepening US recession as the November jobs report worried traders and confirmed the worst fears about the slump.
Comex March copper fell 9.6 USc, or 6.5% to $US1.3735 a pound after touching $US1.356, the lowest for a most-active contract since May 2005. It finished at $US1.38 a pound in London.
Production cuts mooted this week by the likes of Freeport and Nippon Mining failed to boost prices.
Freeport, the world’s biggest listed copper producer, said that output next year will be 5% less then forecast and 2010 will be cut by 11%, with more to come if copper drops significantly under $US1.50. It’s there already, judging by Friday’s close.
Nippon Mining is thinking of cutting its metal output and will cut its purchases of concentrates next year as a result.
On the London Metal Exchange, copper for delivery in three months declined $220, or 6.7%, to $3,050 a metric ton ($1.38 a pound).
Barclays Capital lowered its forecast for copper prices by 24%, citing “clear signs of steep decline in global copper demand”.
It sees the cash metal averaging $US2,900 a tonne in the first quarter, down $US900 a tonne from the November forecast.
Meanwhile, aluminium was unable to hold the $US1,500 a tonne level, sliding 6% to $US1,490, down 15.9% on the week.
Lead eased 1% on Friday, but 12.7% overall, closing at $US960 a tonne.
Gold fell 2.8% in London to $US744 an ounce, down 8.8% over the week.
In New York, Comex February gold fell $US13.30, or 1.7%, to $US752.20 an ounce.
The price touched a day’s low of $US741.20, finishing down 8.2% in the US.
March Comex silver lost 9c to $US9.43 an ounce, off 7.8% over the week.
Among the agriculturals,
Chicago corn fell to a two-year low, while CBOT soybeans and wheat dropped to their lowest for 18 months, on concerns the deepening recession will cut demand for US crops used for food, animal feed and alternative fuels.
Figures out last week showed US corn exports have fallen 47% this year from a year ago, wheat was off 27% and soybean shipments down just 3.4%.
March corn futures on the CBOT fell 24.75 USc, or 7.4% to $US3.0925 a bushel.
It was the biggest fall since July 1996 according to Bloomberg figures. The day’s low of $US3.055 was the lowest since October 2006.
Corn prices are off 61% from the high of $US7.9925 in late June.
January soybean dropped 27.5c, or 3.4%
