London: Global oil demand is expected to decline slightly in 2008 and 2009, the first drop in a generation, as the most severe economic crisis since the 1930s slashes consumption across the developed world.
Worldwide demand will decline by 20,000 barrels per day (bpd) in both 2008 and 2009 to 86.03 and 86.01 million bpd (mbpd), respectively, according to a Reuters poll of 11 analysts, banks and industry groups.
The slight fall is a large shift from a Reuters poll of experts in August, which forecast demand would increase by nearly 1mbpd next year.
Few takers: A gas station in Utah, US. Oil demand has not declined since the early 1980s, following the 1979 oil crisis and a severe recession in the US. OECD demand is predicted to fall to 47.80mbpd in 2008. George Frey / Bloomberg
Demand has not declined since the early 1980s, following the 1979 oil crisis and a severe recession in the US.
“Global GDP growth is the main driver of oil demand and with the economic slowdown, we see global GDP rising by just 1.2% next year,” Michael Lewis, head of commodities research at Deutsche Bank AG, said. “Oil demand growth tends to lag world GDP (gross domestic product) growth by about 2%, so we think we’ll see demand falling.”
The fall in demand is expected to come primarily from members of the Organisation for Economic Co-operation and Development (OECD), where recessions are predicted to be most severe, and which were heavily exposed to therecord rise in oil prices this year.
OECD demand is predicted to fall by 1.39mbpd to 47.80mbpd in 2008, the poll showed, before declining to 46.95mbpd in 2009.
Oil demand is expected to be supported in the developed world by the near $100 (Rs4,990) drop in crude prices since they touched an all-time peak above $147 a barrel in July, but analysts said that recessions across OECD would still crimp consumption.
“When prices were rising, demand in OECD Europe and Asia did not fall nearly as much as in the United States—where taxes are a much smaller component of the price—but it has dropped in the fourth quarter of this year,” Societe Generale analyst Michael Wittner said.
Since the collapse of US investment bank LehmanBrothers Holdings Inc. in September, which heralded a sharper downturn in the global economy, analysts have further slashed their predictions for world oil demand growth.
“The economic crisis seems to be getting worse and worse,” Simon Wardell at international consultancy firm Global Insight said. “Falling transportation of goods is going to be the biggest impact on oil demand, though this may be offset to a degree in 2009 by a slower decline in US demand than we’ve seen this year.”
Consumption from emerging economies such as China and India, which ignited a six-year rally in commodities that sent oil up sevenfold at its peak, is expected to continue to grow into 2009, but at a slower rate than before.
Demand growth in non-OECD economies is expected to total 840,000bpd in 2009, compared with 1.33mbpd in 2008.
The World Bank had said on Tuesday it expects China’s GDP to grow at its slowest rate since 1990 next year, cutting its growth forecast to 7.5% from 9.2%.
The International Energy Agency (IEA) said in its latest monthly report that as China’s main export markets in Europe and the US are expected to slow sharply in 2009, “oil demand is expected to be somewhat weaker”.
IEA, adviser to 28 industrialized nations, said that should Chinese GDP growth fall to just 7% in 2009, it would only see 220,000bpd of oil demand growth.
“Given that emerging markets have been the engine of global oil demand growth in the past few years, a deteriorating economic outlook for non-OECD economies is clearly worrying,” analysts at Merrill Lynch and Co. said in a report released on Wednesday.
“Although emerging market oil demand growth will still be positive overall, it will be substantially below the levels observed in the past few years,” the report added.