IEA trims 2011 global oil demand forecast

Agency warns in oil market report that high prices could dent the fragile economic recovery
IEA trims 2011 global oil demand forecast
ENERGY DEMAND: Preliminary March data showed a marked slowdown in global oil demand, the IEA said (Bloomberg Images)
By Reuters
Thu 12 May 2011 04:06 PM

The International Energy Agency cut its global oil demand growth forecast for this year on Thursday, due to persistent high prices and lower growth projections for developed economies.

The Paris-based agency warned in its monthly oil market report that high prices could dent the fragile economic recovery.

"We clearly have seen demand growth slowing compared to last year's level and we're seeing it very much concentrated where the price feed through is most direct, notably in North America in terms of gasoline," said David Fyfe, head of the IEA's Oil Industry and Markets division.

Gasoline prices of near $4 a gallon in the US will lead to a disappointing summer driving season, according to the agency.

Preliminary March data showed a marked slowdown in global oil demand, the agency said, although the data could be distorted by the devastating earthquake in Japan and the Easter holiday period.

"Persistently high prices at this stage of the economic cycle may ultimately sow the seeds of their own destruction. Until then, the market confronts fundamentals that still look likely to tighten in the second half of 2011," it said in the report.

The IEA said that worries about the economic impact of strong prices together with weak economic data from the US, China and Germany had contributed to the profit taking which took oil prices down sharply over the last week.

"But as the dust settles, prices have again begun to creep higher," it said. "The market bull run may have legs for a while longer."

But demand from developing economies including China was likely to remain unaffected as government subsidies cushioned the end-consumer from strong outright prices.

"Governments in Russia, Brazil and China face difficulties fully passing on recent price rises to consumers, helping to sustain robust demand growth in the non-OECD countries," it said. Potential power supply problems in China might augment that trend."

"So long as you have price support in these emerging markets, you can still have robust oil demand growth even in the face of $100-plus oil," Fyfe said.

The IEA advises 28-industrialised nations on energy policy. Leading forecasters, including the Organisation of the Petroleum Exporting Countries and the US Energy Information Agency expect world oil demand to rise by about 1.4 million barrels per day in 2011.

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