IEA Cuts Oil Demand Forecast

IEA Cuts Oil Demand Forecast as High Prices Curb Use
By Bill Murray
Nov. 13 (Bloomberg)

The International Energy Agency, the adviser to 26 oil-consuming nations, cut its forecast for global demand for the rest of this year and 2008 as prices near $100 a barrel slow consumption in the U.S., Europe and Japan.

Global demand next year will be 87.69 million barrels a day, the IEA said today in its monthly report, 300,000 barrels a day less than its previous estimate. The Paris-based agency reduced its estimate for the fourth quarter by 500,000 barrels a day, to 87.14 million barrels.

The IEA has cut its fourth-quarter forecast three times since August on expectations higher gasoline prices and an economic slowdown in the U.S. will restrain demand in the world's largest energy consumer. Federal Reserve Chairman Ben S. Bernanke said last week the U.S. economy is likely to ``slow noticeably'' this quarter.

``We are certainly seeing a downward revision for 2007 and 2008, and high prices starting to have an effect,'' Lawrence Eagles, chief author of the monthly report, said.

``Consumer spending on transportation fuel in the U.S. is reaching the type of levels in the 1980s'' when inflation- adjusted prices were at similar levels, he said in an interview.

India, China

Oil prices have risen 53 percent this year on surging demand from developing countries led by China and India. Futures reached a record $98.62 a barrel in New York on Nov. 7. Chinese and Indian demand for crude could create a supply ``crunch'' as soon as 2015, the IEA said in a separate report last week.

``The whole fact that we've approached $100 has created a scare for some people,'' said Michael Davies, an energy analyst with Sucden (U.K.) Ltd. in London. ``The underlying fundamentals are that we're expecting tighter markets through 2015.''

Oil demand in the U.S. will be slower than previously expected next year as near-record fuel prices and a slumping housing market depress consumer spending, the IEA said.

Still, while the rapid increase in global prices this year has affected demand, especially in the U.S., ``it is too soon to believe that significant structural changes have taken place to make this lower level of demand permanent,'' the report said.

Stockpiles Fall

Industry stockpiles in the world's most developed economies fell 29.5 million barrels in September to 2.6 billion barrels. Global inventories are 113.9 million barrels lower than a year and Japanese crude stock levels are at their lowest in at least 20 years, the report said.

``The warning flags on demand are out there and we're not into the winter yet,'' said Mike Wittner, a commodities analyst with Societe Generale in London. ``Even with the revisions the IEA has made, the market still expects stock draws into the winter and the first quarter, and that's what the market is keying on.''

In addition, half of the world's growth in oil demand is in China and the Middle East, where consumers benefit from government fuel subsidies, the report said.

Chinese oil demand is expected to remain ``strong,'' driven by economic growth, while rising oil revenue in the Middle East mean that subsidies are ``more easily financed and unlikely to be removed,'' the IEA said.

OPEC Call

The ``call on OPEC,'' an estimate by the IEA of how much crude is needed from the Organization of Petroleum Exporting Countries to balance global markets, was reduced by an average 400,000 barrels a day for 2008 to 31.3 million barrels a day, in part because of lower demand in the world's most developed economies.

The IEA cut its estimate of non-OPEC oil production for 2007 by 35,000 barrels a day to 50.1 million barrels a day, and left unchanged its estimate for 2008 at 51.2 million barrels a day on supply from the U.S., Canada, Brazil and Russia.

Production of crude oil from OPEC's 12 members, including new member Angola, rose 410,000 barrels a day in October to an average 31.2 million barrels a day, the IEA estimated, with half the increase coming from Iraq and Angola.

Crude output from Saudi Arabia, OPEC's largest member, rose 100,000 barrels a day last month, to 8.57 million barrels a day, while Iraqi supply gained 120,000 barrels a day to 2.3 million barrels a day, the highest since April 2004, the IEA said.

Excluding Angola and Iraq, which are exempt from OPEC's output targets, the producer group pumped 27.15 million barrels a day last month, a gain of 195,000 barrels daily. OPEC spare capacity slipped in October to 2.46 million barrels, the report said.