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US and Japan lead global cut in oil consumption

Times Online
December 12, 2008

Robin Pagnamenta, Energy and Environment Editor

World oil demand is set to fall this year for the first time in 25 years as a broadening economic recession undermines energy consumption.

New figures from the International Energy Agency (IEA) yesterday showed that global demand for oil will fall to an average of 85.8 million barrels per day this year – 200,000 barrels lower than in 2007 and representing the first year-on-year decline since 1983.

Plunging demand is being led by the United States, easily the world’s largest oil market, where the IEA said that consumption had been hammered this year by successive blows, including “a financial crisis, high oil prices, devastating hurricanes, and to cap it all an officially recognised economic recession”.

The Paris-based energy adviser to the OECD club of 28 rich nations said that October demand in the US for all oil products was about 18.5million barrels per day, 10 per cent down on last year and the lowest level recorded since 1995.

But weakening demand was not restricted to the US. Japan, the world’s second-largest economy, which officially entered recession last month, reported an even bigger decline of more than 11 per cent to 4.3 million barrels per day.

Canada, Mexico, France, Italy and Spain also all suffered big falls while UK demand softened by 2.2 per cent to 1.7 million barrels per day.

Gareth Lewis-Davies, director of commodities research at Dresdner Kleinwort, said: “There has been a marked slowdown in trade and economic activity around the globe.”

He said that the industrial and commercial use of energy was weakening as companies slashed production and laid off staff, while at the same time, consumers were restricting their personal energy use by driving and flying less and being more frugal in heating their homes.

But despite the economic downturn, the IEA forecast that demand for oil worldwide would pick up again next year, rising to 86.3 million barrels per day as a global economic recovery took hold.

David Martin, an IEA oil analyst, said that the forecast was based on the assessment by the International Monetary Fund that global gross domestic product would continue to expand next year at about 2.1 per cent. Any recovery in demand would be driven by China, which the IEA believes will consume 8.2 million barrels of crude a day in 2009, up from 7.9million in 2008.

The IEA also indicated that the Opec cartel of 13 oil-producing nations, which is meeting next week in Algeria, would need to announce substantial further cuts in production if it was to prevent crude prices from dropping even further.

Since July, when they glanced a record high of $147.27, prices have fallen by more than $100 a barrel. In its most recent monthly oil market report, the IEA said that the cartel had so far complied with only about half of the output cuts it had already agreed.

Mr Lewis-Davies forecast that Opec would need to announce a reduction in production of about 1.5 million barrels per day at next week’s meeting in order to stabilise prices.

The prediction contrasts starkly with the US Government’s view that global oil demand will continue to fall next year. The US Energy Information Administration said this week that it expected demand to shrink by 450,000 barrels per day, after a predicted 50,000-barrel decline this year.

The IEA’s prediction of a slump in demand for oil came as representatives from 190 countries met at a UN Climate Change conference in Poznan, Poland, to hammer out an agreement designed permanently to cut back on global consumption of fossil fuels.

Some delegates at the meeting yesterday criticised the IEA for failing to recognise the potential of alternative technologies to offer other sources of energy. Kees van der Leun, director of the renewable energy group Econcern, said that the IEA had “massively underestimated” the growth potential of solar energy. He added that plunging prices for solar cells and panels, together with capacity for increased production, would help to cut global oil consumption.

The IEA cautioned last month that on current trends, global temperatures were set to rise by six degrees centigrade on pre-industrial levels in the long term.


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