FEATURE: IEA sees oil demand moderating, defends speculators

Global demand for oil will reach 86.87 million barrels a day this year, the IEA said, down 1.4 million barrels a day from the projection in last year's edition of its Medium-Term Oil Market Report. (Photo: statoil.com)

By Abid Aslam

WASHINGTON DC, United States, July 4, 2008 - The International Energy Agency (IEA) has cut its five-year forecast for global oil demand, saying high prices are forcing consumers to leave gas-guzzling vehicles in the garage.

The agency, in a report released Tuesday as Congress weighs measures to rein in commodities speculators, added that it saw little evidence that speculative investment in oil futures has driven up oil prices.

Global demand will reach 86.87 million barrels a day this year, the IEA said, down 1.4 million barrels a day from the projection in last year's edition of its Medium-Term Oil Market Report.

The agency also lowered its demand forecast for 2009-2012 on the grounds that weaker economic growth and sustained high prices will continue to diminish demand.

It highlighted consumers in wealthy countries for reducing their use of petrol-thirsty trucks and sport-utility vehicles (SUVs).

"High prices are clearly affecting consumer behaviour, particularly in the OECD transportation sector, with a visible switch away from SUVs and light trucks in the U.S.," the report said. It referred to the rich countries' Organisation for Economic Cooperation and Development.

Even so, the Paris-based agency predicted that worldwide oil consumption would increase by an average of 1.6 percent a year through 2013 because of growing demand from China, India, and other non-OECD countries. Asia, the Middle East, and Latin America will account for nearly 90 percent of the increase in demand, it said.

On the supply side, the IEA said global production has slowed and likely would remain tight for members of the Organisation of Petroleum Exporting Countries (OPEC) cartel and for non-OPEC countries alike.

It predicted a modest increase in supply capacity, saying this would amount to 94.5 million barrels a day in 2010 and 96.2 million barrels a day in 2013, with OPEC supplying about 54 percent of this total. It added, however, that both projections have been reduced from last year's outlook.

The IEA study coincided with reports Tuesday by major U.S. carmakers and even the previously invulnerable-seeming Toyota, all of which said their sales had fallen -- some by nearly one-third -- in the year to June.

Ford and other manufacturers blamed the downturn on broader economic woes and the high price of oil. Rising fuel prices have increased the cost of producing autos even as they have depressed demand for their products. Also, would-be U.S. car buyers have reported difficulty in obtaining needed financing amid a stubborn credit crunch.

Coming on the heels of proposed U.S. legislation to restrain speculative trading in the commodities markets, the report said making scapegoats of speculators was an "easy solution" that failed to address the problem of rising prices.

"Money flows and speculation can have a day-to-day influence on prices, but it is not one that can be sustained for any length of time without a market imbalance being apparent," the report said.

"The economy is impacted by fluctuations in spot oil prices, not futures prices," it added.

Rather, the IEA said, fundamental factors were to blame. Among others, these include tighter refining capacity, intensified geopolitical concerns, and low spare capacity.

"If supply is constrained and demand is increasing, prices have to rise," the agency said, adding that that poor supply performance since 2004 and strong demand from developing countries combined to begin and sustain the ongoing run-up in prices.

The U.S. government's energy forecaster also has highlighted developing-world demand as a driving factor in the oil industry's prospects.

The Energy Information Administration, in its annual outlook released Jun. 25, said that world energy demand and carbon dioxide emissions will grow by about 50 percent over the next two decades despite soaring oil prices as developing countries outpace rich ones in consumption.

World marketed energy consumption will surge by 57 percent from 2004 to 2030, the U.S. agency said in its International Energy Outlook 2008 report. Over this period, non-OECD countries' share of world energy consumption will rise from 47.9 percent to 58.8 percent.

Total energy demand in non-OECD countries will increase by 95 percent, compared with 24 percent in the 30 OECD countries, according to the statistical arm of the U.S. Energy Department.

Oil and coal will continue to dominate global energy supply, the U.S. agency said, as the transportation sector remains heavily dependent on petroleum and electricity producers continue to lean on coal.

The U.S. forecaster said demand for oil and other liquid fuels will grow to nearly one-third more than today's consumption, topping 113 million barrels a day by 2030. Crude oil will retain its 40 percent market share throughout thanks to stepped up production by OPEC members.

The U.S. report also expected alternative liquid fuels -- including environmentally controversial oil shale and biofuels such as ethanol -- to grow to supply nearly 10 percent of total liquid fuel consumption by 2030.

The United States, it said, would account for nearly half the growth in global biofuels production. U.S. ethanol makers derive their product almost entirely from corn. This form of ethanol has been widely assailed as fueling runaway grain prices. (IPS)