London: World oil demand will drop by a hefty 2.4 million barrels per day in 2009, the International Energy Agency said on Friday, citing a growing consensus any recovery in the economy would not take place until next year.
As the rate of oil demand contraction reached levels last seen in the early 1980s, it said outright demand for this year was expected to be 83.4 million bpd, around one million bpd less than in its previous monthly report.
“This is a pretty exceptional period of demand collapsing,” said David Fyfe, head of the oil industry and markets division at the IEA, the Paris-based advisor to oil-consuming countries.
He could not say whether there would be further downward revisions as a shrinking world economy chokes off energy use.
“I think everyone out there is trying to gauge when the recession is going to bottom out. We can’t say definitively that global GDP is not going to worsen,” he said.
The expectations of a collapse in fuel consumption were not “solely conjecture”, the IEA’s report said and referred to early indications for the first quarter of this year, which suggested “much lower” demand in developed and non-developed countries than previously thought.
As demand has disappeared, stocks have swollen in developed countries and stood at 61.6 days of forward demand cover in February, a measure closely watched by producer group Opec, which considers around 52 days comfortable.
The IEA said current forward cover was the highest since 1993, although it added “absolute stock levels” arguably provided a more representative view of the market because the demand figure has been cut so deeply.
Could Take Longer To Balance Market
The Organization of the Petroleum Exporting Countries has agreed to reduce supply by 4.2 million bpd since September.
In last month’s report, the IEA had said strict adherence with Opec supply cuts already in place would shrink oil stocks in developed nations by around the middle of the year, even though demand was already expected to contract further.
But Fyfe said the “reality check” of the first quarter, with signs of much lower actual demand than previously expected meant it would now take longer for Opec to balance the market, assuming strict compliance.
“We would probably (now) say it would take them until the end of the year,” he said.
Opec crude supply in March had averaged 27.8 million bpd, down 235,000 bpd from February, and output from the 11 members of the group bound by production targets had dropped to 25.57 million bpd -- down 245,000 bpd month on month, but still 720,000 bpd above target output.
The IEA assessed Opec’s compliance rate with agreed supply curbs at 83% in March, compared with the historical average of around 60%.
Analysts have said discipline is unlikely to increase much more as members of the group have said current oil prices of roughly $50 a barrel are a good compromise given the weakness of the economy.
The latest allocations from top oil exporter Saudi Arabia issued on Thursday and Friday showed it would keep supplies steady to some of its customers in May, but cut them to others.
Another limitation on production is underinvestment as lower oil prices erode profits and companies struggle to get credit lines.
The IEA repeated earlier warnings of a possible supply crunch once the economy recovers and energy use picks up and reported a fall in non-Opec supplies.
It said non-Opec supply had fallen by 170,000 bpd in March and year-on-year it expected non-Opec production to fall by 320,000 bpd.