Still think the global economy will be turning over the next year?
If you do, take a look at the latest forecast on oil consumption for 2009.
If there is to be a steadying and then the start of a recovery in major economies, that’s where you will see it appearing: in projections of oil demand and consumption.
The bad news is that the latest, most authoritative forecast doesn’t see it happening.
In fact reports suggest that there’s a negative feedback loop developing in the oil sector which sees a possible surge in prices, while demand remains weak.
Contained in the forecast from the International Energy Agency (IEA) is the basis for believing that oil can’t stay around $US50 a barrel for much longer. That it will have to rise.
That’s especially so now that it’s clear the Chinese Government has got out the kitchen sink and has tossed that into the stimulus package to get China’s slowing economy back and roaring again.
Oil prices were easier yesterday after the US released figures showing the biggest build up in stocks since 1990 and China’s latest growth figures showed a steadying in the economy.
US crude stocks rose 5.6m barrels last week, well above the consensus forecast for an increase of 1.9m barrels.
Crude stocks have reached their highest level since September 1990 as refineries have cut back on production due to maintenance programs and weak demand.
Total US product demand averaged 18.72m barrels per day the past four weeks, down 5.2% compared with the same period a year ago. (And the four weeks before that it was down 3.2%)
This news backs up the warning from the International Energy Agency that global oil demand will fall more sharply than expected this year.
It was at least the 8th cut by the IEA in the past 8 months.
It now sees global oil demand as falling by 2.4 million barrels a day this year, or about 2.6% what global consumption was 18 months ago.
It cut its March forecast by a rather large one million barrels a day, a signal that it doesn’t see any recovery in demand this year, despite the continuing surge in global stockmarkets.
That cut was equal to 1.2% to 83.4 million barrels a day.
The IEA also said oil supply from outside the Organization of Petroleum Exporting Countries will drop this year; and that’s the negative feedback loop.
“The pace of contraction is close to early 1980s levels, with a growing consensus that economic and oil demand recovery will be deferred to 2010,” the Paris-based adviser said in its latest monthly report released last week.
It said that demand will shrink by 2.8% this year as worldwide gross domestic product shrinks by 1.4%. (And more in Europe, the US and Japan, which are some of the major consuming nations)
That is in the ballpark of global economic growth estimates from the IMF and World Bank. The IEA had previously assumed the global economy would grow in 2009.
The drop in demand would normally be bad news for oil prices: it’s the equal of daily production from Iraq, the OPEC’s third-largest producer.
But the Agency’s outlook now “implicitly discards” its earlier view that growth and demand for fuels, would recover in the second half of the year.
Consumption estimates in the March quarter was cut by 700,000 barrels a day.
The fall in demand will be concentrated in the world’s most developed nations, which will be the worst hit by the slump (especially Japan).
The 30 member countries of the OECD (which are the richest economies in the world) will see oil consumption drop 4.9% in 2009.
Stocks are running at two month’s supply, which is high historically.
Non-OPEC supply will fall by 300,000 barrels a day this year, a second annual decline, to 50.3 million barrels a day.
That forecast is 320,000 barrels a day lower than last month’s, when the IEA expected non-OPEC output to be unchanged year-on-year.
Supplies from outside OPEC may be curtailed by a further 360,000 barrels a day by the end of next year because of spending cuts in North America, the North Sea and Russia.
And that’s where the price pressure starts appearing as a greater proportion of global production moves back to OPEC.
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And, the falling price and poor outlook is seeing companies large and small cut exploration, production and field work overs.
Reports from London this week say there is a real chance that the UK area of the North Sea could see a sharp fall in exploration and production this year.
The Financial Times reported that the remaining life of the UK’s North Sea oil and gas production could be halved because the ec
