LONDON: The first drop in world oil demand in 25 years will sharply lower the need for OPEC crude in 2009, the producer group said on Tuesday, opening the door for a substantial production cut when it meets in Algeria this week.
In its monthly oil market report, OPEC said demand for its crude is expected to fall by an average of 1.4 million barrels per day (bpd) next year, with the first half of 2009 seeing an even steeper decline.
Global oil demand is now expected to decline by 100,000 bpd in 2008 before falling by a further 150,000 bpd in 2009 to average 85.7 million bpd, due to a marked slowdown in the world economy.
That represents a 640,000 bpd downward revision to OPEC s 2009 estimate last month, which forecast global oil demand would grow by 490,000 bpd.
The producer group also forecast non-OPEC supply would now grow by just 640,000 bpd in 2009 – compared to 710,000 bpd in last month s report – while its estimate of non-OPEC supply growth in 2008 has been revised down to 100,000 bpd from 200,000 bpd the previous month.
Given negative growth in world oil demand and positive growth in non-OPEC supply, the demand for OPEC crude is projected to decline sharply in 2009, falling 1.4 million bpd to average 30.2 million bpd, OPEC said in the report, which is written by economists based at its Vienna headquarters.
Moreover, in the first quarter of 2009, the demand for OPEC crude is expected to see a sharp drop of 2.3 million bpd from the same quarter in the previous year.
OPEC is widely expected to slash production by around 2 million bpd when it meets in Oran, Algeria on Wednesday, as the group struggles to put a floor under prices which have collapsed by two-thirds since peaking above $147 a barrel in July.
The producer group, responsible for two out of every five barrels of oil in the world, said demand for its crude was now expected to average 31.6 million bpd in 2008.
In November, OPEC crude production averaged 31.1 million bpd, according to secondary sources cited by the group in its report, representing a drop of 740,000 bpd from the previous month.
However, the 11 OPEC members – excluding Iraq – who are governed by output quotas, should have cut production by 1.5 million bpd since Nov. 1 as agreed at its last official meeting.
Lower than IEA
With the latest revisions, OPEC has slashed its forecast for 2009 oil demand by more than 1 million bpd since its first prediction in back in June.
OPEC said 45 million barrels of crude oil are being held in floating storage around the world due to slowing demand and the incentive to wait for higher prices.
OPEC s estimate of global oil demand is now lower than the Paris-based International Energy Agency (IEA) -adviser to 28 industrialized countries -which last week said global oil demand would fall in 2008 but rise in 2009.
The US Energy Information Administration expects global oil demand to decline in both years, falling by as much as 450,000 bpd in 2009.
OPEC said it now views global economic growth – the key driver of world oil demand – as falling to just 1.5 percent in 2009, almost halving the previous month s estimate as the US, Europe and Japan slip deeper into recession and growth everywhere else slows dramatically.
China s economic growth, the engine behind much of the 10-year commodity boom which took oil prices from $10 to almost $150 a barrel, is now expected to be 7 percent next year after years of double-digit growth.
The worsening world economy is expected to have a strong impact on oil demand next year especially in the Organization for Economic Co-operation and Development countries, OPEC said.
Should the world economic situation show further deterioration and the winter prove to be warmer than expected, then oil demand might show a further decline.
