Lehman lowers oil demand growth forecast by 47%

New York: Global demand growth for oil will be 47 per cent lower this year than initial forecasts because of declining oil consumption in the US and slowing world 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 yesterday.

The International Energy Agency has reduced its forecast to 1.03 million from 2.11 million, Lehman said.

Prices of oil futures fell 11 per cent 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, US oil demand surpassed all negative expectations."

US oil demand may show lower annual growth of one million barrels a day through June, the Lehman report said.

Cumulative vehicle miles travelled in the US are down 2.1 per cent this year as gasoline, which makes up almost half of US demand, rose to a record average $4.10 a gallon.

"Not only are Americans driving less but they are doing so with more efficient cars," Morse said.

Fewer journeys

"Luxury pickups and SUVs represent 12-13 per cent of seasonally adjusted sales, down from 18 per cent last year.''

The overall demand for petroleum products in US fell by 2.2 per cent, the report said, citing weekly data. Demand for distillates, jet fuel and fuel oil fell by 1.8 per cent, 2.7 per cent and 14.3 per cent respectively.

China and India continued to consume more oil driven by electricity shortages and fuel substitution, the report said.

China's oil demand rose by 4.7 per cent, or 350,000 barrels a day, in the first half of this year, slower than a 7.1 per cent 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 per cent in the first half of this year led by fuel substitution as industries burn subsidised diesel instead of more expensive fuel oil, the report said.

Demand for diesel climbed by 20-25 per cent in India in the first half, the report said, citing state oil companies.

Fuels subsidies in China and India are driving demand higher.