World's demand for oil to fall as recovery falters, says IEA

While the fall in oil prices will be welcomed, the fact that it has been precipitated by a slowdown in the pace of economic recovery is less happy news

Fears over the global economic recovery prompted the International Energy Agency (IEA) to give warning of a sharp slowdown in the growth of oil demand yesterday.

The agency's monthly oil reportrevealed demand growth shuddering to a halt in June as high prices and slowing economic growth "dramatically curbed" energy needs worldwide.

"The relative calm of oil markets in July was shattered by the collapse in global financial and commodity markets in early August," the IEA said.

"The spectre of a sharp slowdown in economic growth near–term, particularly in the US, is prompting some industry forecasters to cut global oil demand estimates for this year and 2012," the agency added, pointing to high oil prices, sovereign debt and fiscal uncertainty sapping consumer confidence in the developed world, and anti-inflationary monetary tightening in developed economies.

So far, the IEA itself has made only minimal adjustments to its headline forecasts. It yesterday cut this year's estimate by 60,000 barrels per day (bpd) to 89.5 million bpd, largely on the basis of the weaker appetite in evidence in China and the US. And next year's estimates were even tweaked slightly higher – up by 70,000 bpd to 91.1 million bpd – on the expectation of rising need from post-tsunami Japan.

However, in response to "emerging economic storm clouds", the IEA has sketched out a scenario of lower global GDP growth slashing 2012 oil demand growth by more than half. In such a case, the call on crude from the 12-country Opec oil producers' cartel would drop below 30 million bpd, the IEA said.

The drop in demand is alreadyhaving a marked impact. Oil prices have dropped by as much as $15 since the beginning of this month alone, and the prices are set to slide lower still as the extra crude from Opec's supply boost comes through.

Opec supply rose by 115,000 bpd to 30.1 million bpd in July in an attempt to offset prices sent rapidly skywards by the Libyan crisis, with Opec heavyweight Saudi Arabia at its highest production levels for three decades.

Despite the promise of respite for cash-strapped consumers – in particular motorists – lower oil prices are not untrammelled good news, according to the IEA, which gave warning they were a symptom of a wider problem.

"Lower energy input costs are well and good, but not if they are achieved at the cost of another economic crisis," the agency said.

"Arguably, political paralysis has played a greater role in the currentsituation than has the financial sector. Either way, earlier bullish oil market prognoses are having to be hastily re-examined," it added.

The IEA's characterisation of recent developments as "reviving all the old clichés about rollercoaster volatility", came the day after oil prices slumped to six-month lows and then bounced back up to more than $105 per barrel in a single session. Yesterday saw the price touch $103 before rebounding.

Earlier this week, Opec revised its demand forecasts downwards for both this year and next, warning of "dark clouds over the economy".

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement