IEA Cuts Demand Outlook, Sees 1 Million-Barrel Drop (Update1)

Feb. 11 (Bloomberg) -- The International Energy Agency cut its global oil demand forecast for 2009, projecting consumption will decline by 1 million barrels a day as the worldwide recession deepens, the biggest drop since 1982.

The adviser to 28 nations trimmed its 2009 forecast by 570,000 barrels to 84.7 million a day because of a weaker economic outlook from the International Monetary Fund. The agency warned slipping investment in capacity may trigger a price rebound that “could again destabilize the global economy.”

“We’ve been following the downward spiral in economic expectations,” David Fyfe, head of the IEA’s oil industry and markets division, said in a phone interview from Paris. “We’re on a downward escalator in terms of economic expectations, but at the same time the supply side is being hit.”

Oil prices have plunged more than $100 a barrel from a record in July as the U.S., Europe and Japan face their first simultaneous recession since World War II. Crude futures in New York traded below $40 a barrel today.

It’s the agency’s sixth consecutive reduction of its 2009 crude demand estimate, now forecast to shrink 1.1 percent from 2008. The biggest revision was made to the world’s most developed economies in the Organization for Economic Cooperation and Development. The IEA cut demand expectations there 340,000 barrels a day to 46 million barrels a day, implying a contraction of 1.5 million barrels a day, or 3.2 percent.

Developing Nations

Estimates for oil consumption this year among developing nations were lowered by 230,000 barrels a day to 38.7 million a day, with the outlook for Asia and the former Soviet Union “particularly grim,” it said.

The IEA trimmed its forecast for supplies from outside the Organization of Petroleum Exporting Countries next year by 110,000 barrels a day to 50.9 million barrels a day. The total now includes 1 million barrels a day from Indonesia, which left OPEC at the start of the year.

While non-OPEC supply is still projected to increase 400,000 barrels a day from last year, the IEA’s Fyfe said the downward revision “could well go further into 2009 if spending cuts have an immediate impact on drilling.”

“There’s a real risk that supply takes a hit this year because of lower prices and scant credit,” Fyfe said.

OPEC Supply

OPEC, responsible for more than 40 percent of the world’s oil, will have to provide about 28.8 million barrels a day this year to balance supply and demand, the IEA said.

Its 12 members pumped 29 million barrels a day of crude oil in January, 950,000 barrels a day less than in December, as the organization implemented announced supply cuts, the IEA said. Saudi Arabia, OPEC’s biggest producer, cut by 300,000 barrels a day last month to 8.1 million barrels a day, according to the agency.

The 11 OPEC nations bound by production quotas pumped 26.65 million barrels a day last month, the IEA said, compared with their official Jan. 1 limit of 24.845 million a day.

The IEA has reduced its estimate for OPEC’s average capacity this year to 35.1 million barrels a day from 35.5 million a day in July, when prices reached a record $147.27 a barrel.