PARIS (AFP) — The International Energy Agency (IEA) slashed its 2009 oil price forecast to 80 dollars from 110 dollars on Thursday, saying imminent recession is strangling demand in rich countries and crimping emerging economies.
The price of Brent oil in London slumped to 50.60 dollars, the lowest level for three and a half years, after publication of the report, which said global oil demand would show almost no growth this year from the 2007 level.
The IEA, revealing further big cuts to its estimates of global oil demand this year and next, said that despite heavy price falls, prices on futures contracts pointed to 85 dollars a barrel.
Demand for oil in North America fell by 5.7 percent in September on a 12-month comparison for the ninth month running owing to a 6.9-percent fall in the United States, a "plunge" which the IEA said was "quite brutal."
US demand for oil responded more to economic activity than to price, and it was not yet clear whether cheaper petrol (gasoline) prices would enourage demand.
The agency said in its monthly report that it was "unlikely that...US motorists will revert to driving and purchasing gas-guzzling SUVs (sports utility vehicles)" and financial conditions for US auto manufacturers were worsening by the day.
The market was in "unchartable territory" owing to many uncertainties including the extent of the economic slowdown in China and some pressure within OPEC for a further production cut, it said, adding that prices could tighten next year.
The report was published shortly before the OECD said on Thursday that industrialised nations show all the signs of being in a long downturn, forecasting a shuddering slowdown in the United States in the fourth quarter and contraction of the US, eurozone and Japanese economies next year.
The IEA said: "We have lowered our oil price assumption to 80 dollars per barrel in 2009 versus the 110 dollars-a-barrel hypothesis that we had kept over the past three months."
The latest assumption was based largely on a recent IMF report putting "OECD economies clearly in recession" next year.
But among uncertain factors around the forecasts was "the fate of China which has been one of the main engines of global oil demand growth over the past several years."
After months of wondering if, when and to what extent, the Chinese economy and oil demand would slow, the IEA said the country now seemed "poised for a slowdown given the severity of the financial crisis" in advanced economies which were important markets for Chinese goods.
Chinese oil demand now seemed set to grow by "only 3.7 percent" or 290,000 barrels per day next year to 8.2 mbd, which was a cut of 180,000 barrels from the previous estimate but could even fall by 360,000 barrels to show the slowest growth since the late 1990s.
Some economists saw economic contraction in the 30 OECD most developed countries "dragging down China and the rest of the non-OECD, resulting in outright global contraction in both gross domestic product and oil demand."
The IEA said that "while we lack a crystal ball," a recently announced Chinese economic stimulus package "could help avert the first global demand contraction since 1983."
The IEA, the oil monitoring and strategy arm of the Organisation for Economic Cooperation and Development, said that "given the economic contraction, a lower price will only have a very limited effect upon oil demand."
The report said that "oil demand is in a tailspin" but that "there is scant consensus on the slowdown's scale and duration."
The "current squeeze" had widespread repercussions. "Slowing oil sector investment in 2009 sows the seeds of a sharp tightening in market fundamentals if major projects are delayed."
It warned that the impact of such a slowing of investment would be felt in three to five years' time "after economic recovery regains a foothold."
A recent target production cut of 1.5 million barrels per day by OPEC was intended to prevent slowing demand from driving up inventories of oil, and some members had "an eye on the prices needed to finance higher spending requirements."
But since the decision to cut ouput had had little effect in holding up the oil price, Iran and Venezuela had suggested a further cut of 1.0 mbd either in November or December.
"But Iran itself is under pressure to sustain supplies of associated gas for domestic power generation," the report said, remarking that "reducing supply too steeply may be a concern if it risks a price surge with adverse consequences for a sick global economy."
Supplies from OPEC were steady in October from the September level at 32.1 mbd, or about 700,000 barrels less than estimated peak production in June.
OPEC had spare capacity of 2.3 mbd and this was likely to rise by 300,000 mbd by the end of this year.
The agency cut its forecast for global oil demand this year further by 330,000 barrels per day and for next year by 670,000 bpd.
This meant it estimated global demand this year would be almost flat, growing by 0.12 mbd to total 86.2 mbd, and by 0.35 mbd next year to 86.5 mbd.
Global supply rose by 1.8 mbd in October to 86.9 mbd, the agency estimated. Production by OPEC was flat and its new production target from November 1 was 30.5 mbd.
The agency revised down its estimate of non-OPEC output this year by 85,000 barels per day to 49.7 mbd and next year by 145,000 barrels to 50.3 mbd.
OECD industrial stocks of oil fell by 16.9 million barrels in September, but owing to data adjustments remained high at 55 days of consumption.
But global refinery activity was expected to average 73.5 mbd in the fourth quarter of this year, a cut of 1.4 mbd from the estimate last month.
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