Demand for oil will drop by 1.2 per cent this year, the biggest annual contraction since 1982, the International Energy Agency (IEA) warned yesterday.
The IEA has revised its oil consumption forecasts downwards for the third time as the credit crunch continues to batter economies across the world. Global oil demand is now expected to drop to just 84.7 million barrels per day this year, 1 million daily barrels fewer than in 2008.
In the US, the world's biggest consumer, economic problems are dragging consumption down to the same level as a decade ago, and oil use is now forecast at 19 million barrels per day in 2009, some 2.9 per cent lower than last year, which was itself 5 per cent down on 2007. Even developing economies are not helping, says the IEA. China will demand just 0.7 per cent more oil in 2009 than in 2008, the slowest rate of growth in nearly two decades.
"In retrospect, last summer's $140 per barrel price triggered demand destruction in the face of inelastic supply, but widespread financial and economic collapse are now the key brakes on global demand," the IEA said yesterday.
Meanwhile, the recession is also putting much-needed investment in the UK's domestic energy reserves at risk. Capital investment in North Sea projects is expected to be between £3.5bn and £4.5bn this year, compared with nearly £5bn in 2008, the industry association Oil & Gas UK warned yesterday. Investments could fall as low as £2.5bn to £4bn by 2010.
The industry is calling on the Government to review its tax regime for UK energy reserves. Since the oil price was last at $40, the cost base and supplementary charge on corporation tax have both doubled, and the risk is that investment is lost.
The dangers are significant. Carl Hughes, at Deloitte, said: "Under-investment risks fatally undermining the integrity of the UK oil and gas production infrastructure, resulting in a loss of skills and competitiveness."Reuse content