Singapore: Global demand growth for oil will be 47% lower this year than initial forecasts due to declining consumption in the US and slowing global economies,Lehman Brothers Holdings Inc. said.
Oil demand may grow by 790,000 barrels a day this year compared with an estimate of 1.5 million barrels a day made at the start of the year, Lehman analysts led by Edward Morse said in a report on Monday.
The International Energy Agency has reduced its forecast to 1.03 million from 2.11 million, Lehman said.
Prices of oil futures fell 11% last week, the most in more than three years, on signs of slowing global economic growth and faltering US fuel demand. Americans are driving less because of weakening income growth and rising inflation.
“High prices and lower economic growth have driven oil demand in the US lower,” Morse said in the report. “Over the first half of the year, the US oil demand surpassed all negative expectations.”
Crude oil for August delivery rose as much as $3.17, or 2.5%, to $132.05 a barrel on the New York Mercantile Exchange. It was at $131.32 at 1.13pm in London.
The contract settled at $128.88 on 18 July, the lowest close since 5 June. Prices dropped 11% last week, the most in more than three years, on signs of slowing global growth and lower US fuel demand. The US oil demand may show lower annual growth of 1 million barrels a day through June, the Lehman report said. Cumulative vehicle miles travelled in the US are down 2.1% this year as the price of petrol, which makes up almost half of the US demand, rose to a record average $4.10 a gallon.
“Not only are Americans driving less, they are doing so with more efficient cars,” Morse said. “Luxury pickups and SUVs represent 12-13% of seasonally adjusted sales, down from 18% last year.”
US demand slowing: Cars drive past an oil refinery in Wilmington, California. (Photograph by Tim Rue/ Bloomberg)
The overall demand for petroleum products in the US fell by 2.2%, the report said, citing weekly data. Demand for distillates, jet fuel and fuel oil fell by 1.8%, 2.7% and 14.3% respectively.
China and India continued to consume more oil driven by electricity shortages and fuel substitution. China’s oil demand rose by 4.7%, or 350,000 barrels a day, in the first half of this year, slower than 7.1% growth in the first half of 2007. “The near-term demand looks robust as Beijing deals with summer shortages and Olympic stockpiling, but the potential for demand spikes looks limited, and the long-term demand trend looks to be moderating compared with that of 2005-07,” the report said.
Demand for oil in India grew by 4.7% in the first half of this year led by fuel substitution as industries burn subsidized diesel instead of more expensive fuel oil, the report said.
Demand for diesel climbed by 20-25% in India in the first half, the report said, citing state oil companies.
Fuels subsidies in China and India are driving demand higher. “China’s and India’s pricing decisions are most relevant to world balances, as their demand growth is rising most quickly,” the report said.