Oil Demand Down; 1st Time Since ’83

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    Oil Demand Down; 1st Time Since ’83

Oil Demand Down; 1st Time Since ’83

Published: December 11, 2008

Global oil consumption will drop this year for the first time since
1983, as an economic downturn in the West and slower growth in China
cuts fuel demand, according to the world’s main energy forecaster.

The International Energy Agency, an adviser to industrialized nations,
said on Thursday that it projects worldwide demand to fall by 200,000
barrels a day, to 85.8 million barrels a day, in 2008. The new forecast
is 350,000 barrels a day less than the agency’s last monthly report,
which is widely read among energy experts.

Oil demand may recover somewhat next year, although at a much slower
pace, as the global economy turns the corner in the second half of 2009,
according to the energy agency. It sees consumption growing by 0.5
percent, or 400,000 barrels a day. That is still 260,000 barrels a day
less than was expected last month.

While not entirely surprising, the outlook is more optimistic than most
energy forecasts, many of which paint a far bleaker picture of the oil
markets for the next 12 months. Many analysts had already predicted
lower consumption this year, and some also expect demand to drop next year.

The Energy Department said earlier this week that global consumption
would probably fall by 450,000 barrels a day in 2009, the first time in
more than 30 years that demand declines for two consecutive years.

As a result of the global recession, the price of oil has fallen more
than 70 percent since its peak this summer. Oil fell to $40 a barrel
last week, after rising as high as $147 a barrel in intraday trading in

On Thursday, oil futures in New York surged $4.29 to $47.81 a barrel,
after the Saudi oil minister, Ali al-Naimi
said that his country had cut its production to 8.5 million barrels a
day, down more than 1.2 million barrels a day from its August peak.

The agency’s report could add grist to the view that OPEC
producers must reduce their output to prevent a complete price collapse.
The oil cartel is meeting next week in Algeria to consider reducing its
output and stem the price drop.

Adding to the pressure on the market, the world’s idle production
capacity has risen to its highest level in six years, and now stands at
nearly five million barrels a day. Tight spare capacity, which had
fallen to a low of a million barrels a day, was a big factor in the
price surge in recent years.

OPEC’s efforts to stabilize prices may be getting some assistance from
other producers. Russia suggested on Wednesday that it would coordinate
a possible production cut with the cartel, while President Dmitry
of Russia said on Thursday that the country could not rule out joining
OPEC, according to local news agencies.

Other producers who have cooperated with the Organization of the
Petroleum Exporting Countries in the past, like Norway or Mexico, have
so far ruled out cutting their production.

Oil demand in the United States has been particularly hard-hit this
year, especially when gasoline prices exceeded $4 a gallon nationwide
over the summer. Consumption is expected to fall by 6.3 percent this
year compared with 2007, to 19.4 million barrels a day, and again by 1.4
percent in 2009, the energy agency said.

But as gasoline prices have fallen back to a nationwide average of $1.66
a gallon, there are preliminary signs that consumption may be picking up
again. Last week, gasoline demand rose for the first time in 33 weeks,
according to a survey of national gas sales conducted by MasterCard

Copyright 2008 The New York Times Company

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