Demand to fall for second year in a row

Dallas: Oil demand will contract for a second year in 2009 amid weakening global economies, according to a Louis Capital Markets (LCM) forecast on Wednesday.

Consumption will probably be 85.08 million barrels a day this year, down 350,000 barrels a day from a 2008 estimate by the International Energy Agency, said analysts led by Edward L Morse, LCM's chief economist.

The decline "will almost certainly continue through 2009, and the most likely case for 2010 will be modest demand growth," the analysts said in the report.

"This is based on the view that the spreading recession is likely to deepen, globally, through the first three quarters of 2009 and rebound only in the winter of 2009-2010."

The forecast is based on an assumption that the International Monetary Fund will lower its world economic outlook, the Organisation for Economic Cooperation and Development economies will contract by about one per cent, and that world economic growth will be two per cent "at best".

The IEA, an adviser to 28 nations, trimmed its world demand forecast for 2009 by 260,000 barrels a day in its monthly oil market report on December 11.

"We believe that the IEA will continue to shave its demand outlook as the year progresses," the analysts said in the report. The next monthly report from the IEA is scheduled to be released today.

LCM forecasts 2009 OECD demand of 46.33 million barrels a day and non-OECD demand of 38.75 million barrels a day. That compares with IEA forecasts for 46.9 million barrels a day from OECD countries and 39.4 million barrels a day from outside the OECD.

LCM also expects that Opec production cuts will eventually bolster prices for crude, although "seasonal factors" will mitigate their effect until the end of the second quarter.

The Opec cuts, along with lower demand and growth in output capability, may boost the organisation's spare capacity above four million barrels a day for the first time since 2002, the analysts said. The figure could top five million barrels a day.