EIA Sees Demand Fall for First Time in Decades
By Tom Doggett, Reuters
Global oil demand will contract for the first time since the early 1980s as world economic growth slows to a near standstill, the U.S. government said on Tuesday.
The forecast for 2008 and 2009 is bad news for energy companies and oil producing nations that depend on robust prices, but could benefit cash-strapped consumers by sending gasoline and heating costs lower, according to a U.S. Energy Information Administration report.
World oil demand is projected to fall by 50,000 barrels per day in 2008 and 450,000 barrels per day next year, the EIA said, led by a 1.2 million bpd contraction in top consumer the United States this year a 200,000 bpd drop in 2009.
The report marked the first major forecast for shrinking energy demand tied to the current global financial crisis.
The lower forecast came as the EIA revised down its projection for 2009 global economic growth to 0.5 percent next year, from the 1.8 percent projection it made in its previous report issued in November.
"The current global economic slowdown is now projected to be more severe and longer ... leading to further reductions of global energy demand and additional declines in crude oil and other energy prices," the EIA said.
The last time world petroleum demand fell was in 1983, part of four years of straight declines in oil consumption that began in 1980, the agency said.
The weak economy and lower petroleum demand has already caused U.S. crude oil prices to sink from a record $147 a barrel in July to $43 on Tuesday -- a slump that has rattled energy producing nations like Saudi Arabia, Russia and Venezuela, and triggered massive cutbacks in investment in oil projects like those in Canada's oil sands.
"The increasing likelihood of a prolonged global economic downturn continues to dominate market perceptions, putting downward pressure on oil prices," the EIA said.
Demand still is expected to grow next year in emerging economies such as China, which helped drive the six-year rally in oil prices to record highs. Still, the latest EIA report revised demand from this group down by 40,000 bpd.
The EIA slashed its 2009 forecast for crude oil prices to $51 a barrel from $63.50 a barrel in its previous forecast.
"I don't think they are done revising. I think next month will be lower. I'm having a hard time seeing GDP growth anywhere -- we may see pockets of growth -- but not worldwide or regionally," said Peter Beutel, president of Cameron Hanover, based in New Canaan, Connecticut.
Meanwhile, the World Bank said on Tuesday that the world financial crisis will sharply slow world economic growth next year, ending the five-year global price boom for crude oil and other commodities.
The weaker energy prices could mark a bright spot for consumers who have been hard hit by the financial turmoil.
The EIA said it cut its winter heating oil forecast to $2.53 a gallon from $2.75 a gallon, and its 2009 gasoline price forecast to $2.03 a gallon from $2.37.
Average U.S. gasoline price are currently running about $1.70 a gallon, down from a record $4.11 this summer.
"We've lowered the bar for gasoline demand so much that it's going to take years for it to recover to the type of demand numbers that we had in the past," said Phil Flynn, analyst at Alaron Trading in Chicago.
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