IEA predicts lower demand for oil

The International Energy Agency's forecast yesterday of lower-than-expected demand for oil next year did not prevent further price rises on world oil markets. The price of a barrel of London Brent crude rose $1.30 to settle at $77.68 last night, despite the IEA's decision to reduce its forecast for global oil demand in 2008 by about 160,000 barrels.

The IEA said slower economic growth in the US and Europe would result in oil demand for 2008 coming in below its previous estimates. It predicted demand of 88.02m barrels a day next year, down from the 88.16m it forecast last month, and also forecast falling demand in the final quarter of this year, to 85.92m barrels a day.

The agency added that its forecasts could be reduced further if the sub-prime credit crisis continued to spread around the world. "The outcome of the recent financial market turbulence remains unclear," the IEA said.

Nevertheless, the upwards pressure on the price of oil continued yesterday, as speculative investors continued to bet on further increases. The price of US light sweet crude hit $78.99 a barrel, an all-time high.

The increases also reflected the limited impact of Tuesday's decision by Opec, the oil cartel that provides a third of the world's oil, to raise production for the first time in 12 months. While Opec said it would increase output by up to 500,000 barrels a day, oil analysts pointed out the cartel was already exceeding its current production limit by up to 900,000 barrels.

The IEA's forecast also had limited impact on the oil price in the context of new data published in the US last night, which showed further falls in US stock piles.

"The demand forecast still remains relatively strong," said Harry Tchilinguirian, an energy analyst at BNP Paribas. "We're still looking at global demand outpacing supply."

Yesterday's price increases follow a 40 per cent rise in the cost of oil over the past five years.