IEA trims demand and supply outlook

London: World oil demand will rise at its slowest pace in six years during 2008 as a raft of fuel subsidy cuts in Asia erodes consumption, the International Energy Agency (IEA) said on Tuesday.

But the adviser to 27 industrialised economies also sharply lowered its projection for supply outside the Organisation of the Petroleum Exporting Countries (Opec), increasing consumers' reliance on the exporter group.

In its monthly Oil Market Report, the IEA said global oil demand will rise by 800,000 barrels per day (bpd) this year, 230,000 bpd less than forecast earlier.

The head of the IEA's oil industry and markets division, Lawrence Eagles, said this year's demand growth will be the slowest since 2002, when consumption grew by 735,000 bpd and crude averaged just over $26 a barrel. "It's two things. The easing of subsidies is one of the main factors and historical growth in Asia is stronger than we previously estimated," Eagles said.

The report adds to evidence that high oil prices, which hit a record $139.12 on Friday, are slowing oil use. The IEA has more than halved its estimate for demand growth this year from 2.2 million bpd in July 2007.

Rising prices have forced several Asian economies to trim subsidies on domestic fuel in recent weeks.

Comment

Analysts said concern about supply growth overshadowed the cut in demand. "I think the report is more on the bullish side," said Merrill Lynch's head of global commodity research, Francisco Blanch.

The IEA cut its forecast for non-Opec supply growth to 460,000 bpd, against 680,000 bpd in its previous report. As a result, it raised its expected demand for Opec oil for the year by 300,000 bpd to 31.6 million bpd.

The IEA said oil stocks in countries belonging to the Organisation of Economic Co-operation and Development (OECD) fell 8.1 million barrels in April.

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Subsidised Chinese demand for fuel is a central force behind a major change in the US lifestyle - Americans are at last turning to small diesel cars, the IEA said yesterday.

The IEA said that although oil prices in current and inflation-adjusted terms have reached record levels, the real burden on the global economy is lower than in the 1980s. But the effect on many poor countries is severe.

But the current energy squeeze was different from the oil crises of the 1970s and 1980s because it was driven by a "demand shock" rather than supply factors.

- AFP