Crude Oil Declines After IEA, OPEC Trim Forecasts for Demand

March 13 (Bloomberg) -- Crude oil fell after the International Energy Agency and OPEC cut their global demand forecasts because of the recession in major consuming countries.

The IEA, which advises 28 developed nations on energy policy, lowered its consumption outlook 0.3 percent to 84.4 million barrels a day in a monthly report today. OPEC reduced its 2009 oil-demand prediction, saying the global economy was in a “dreadful situation.”

“When both the IEA and OPEC are calling for a substantial drop in demand, there is going to be pressure on oil prices,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts.

Crude oil for April delivery fell 78 cents, or 1.7 percent, to settle at $46.25 a barrel at 3:02 p.m. on the New York Mercantile Exchange. Prices have gained 1.6 percent this week and are 3.7 percent higher so far this year.

The Organization of Petroleum Exporting Countries lowered its estimate for 2009 global demand by 520,000 barrels to 84.6 million barrels a day in this month’s report. Consumption will now drop by 1.01 million barrels a day this year, according to the report.

OPEC ministers will meet on March 15 in Vienna to discuss making a production cut. The group has reduced daily output targets by 4.2 million barrels since September.

Members will “probably” opt for a combination of a production cut and greater compliance with previously announced reductions, Venezuelan Oil and Energy Minister Rafael Ramirez said today in an interview.

Kuwaiti Oil Minister Sheikh Ahmed al-Abdullah al-Sabah said “all options are on the table” at the meeting.

‘Still Undecided’

“We don’t want to hurt the international economy, but at the same time we don’t won’t to hurt ourselves,” al-Sabah said in an interview at Vienna airport today. “It is a very difficult equation. It is still undecided.”

Nigeria is opposed to further reductions by OPEC countries at the meeting, a spokesman for the state oil company said yesterday.

“The probabilities are overwhelming that they will not cut,” Edward Morse, an economist at New York-based LCM Commodities LLC, said in a Bloomberg television interview. “If oil prices were at $40 or in the $30 range, I think it would be a fairly high probability they’d cut. With prices above $40, flirting with $50, they have the economy on their minds.”

Qatari Oil Minister Abdullah bin Hamad al-Attiyah said this week that the group needs to reach full compliance before taking any new action.

No Consensus

“You are seeing a lot of last-minute positioning before the OPEC meeting,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut. “There’s not a lot of consensus about what they will do, which is unusual before a meeting. We could come in Monday to a big surprise.”

The 11 OPEC nations bound by production quotas, all except Iraq, pumped 25.7 million barrels a day last month, today’s IEA report showed. That compares with OPEC’s Jan. 1 limit of 24.845 million barrels a day. The figure implies the group is complying with 80 percent of its production targets, the IEA said.

“We have to insist on higher compliance of the cuts, which we believe has been good, but needs to be completed,” Ramirez said. “We have to look at the fundamentals of the market and the macroeconomic situation. It is very complicated.”

Oil inventories are “above average” and Venezuela is seeking a price floor of $70 a barrel, Ramirez said.

Brent crude oil for April settlement fell 16 cents, or 0.4 percent, to $44.93 a barrel on London’s ICE Futures Europe exchange.

“If OPEC does agree to any additional production cuts, it will propel oil up to $50,” said Tom Knight, trading director at Truman Arnold Cos. in Texarkana, Texas. “If not, we will see a selloff in the complex next week.”

Slowing Economy

Oil has dropped 69 percent from the record $147.27 a barrel reached on July 11 as the U.S., Europe and Japan face their first simultaneous recessions since the Second World War.

Goldman Sachs Group Inc. cut its forecast for the global economy for the second time in eight days after predicting a deeper recession in Europe. Countries using the euro may see a decline of 3.6 percent in 2009, and the world economy may contract by 1 percent, according to London-based Goldman economist Binit Patel.

Prices fluctuated between an increase of as much as $1.11 a barrel and a decline of $1.26 today in New York as attention shifted between OPEC statements and the demand projections.

Bipolar Market

“It’s a bipolar market because there’s a real split in the market today about the outcome of the OPEC meeting,” said Chris Ruppel, an energy analyst at Execution LLC in Greenwich, Connecticut. “But the concern continues to be demand destruction.”

Crude oil volume in electronic trading on the Nymex was 391,507 contracts as of 3:10 p.m. in New York. Volume totaled 660,226 contracts yesterday, 21 percent higher than the average over the past three months. Open interest was 1.24 million contracts yesterday. The exchange has a one-business-day delay in reporting open interest and full volume data.