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. Last Updated: 07/27/2016

Oil Demand Seen Plummeting in '09

ReutersA Russian delegation of gas and oil company representatives meeting with Iraqi Prime Minister Nouri al-Maliki in Baghdad on Thursday. A deal signed in April allows Russian energy companies to revive their prewar contracts.
LONDON -- World oil demand this year will post the sharpest annual decline since 1981 as the economy struggles to bounce back, the International Energy Agency said Thursday.

Demand will contract by 2.56 million barrels per day in 2009, the IEA, which advises 28 industrialized countries, said in a monthly report. It previously forecast that demand would fall by 2.4 million bpd this year.

Oil market fundamentals remained weak, and a rise in oil prices, which hit $60 a barrel for the first time in six months on Tuesday, was because of sentiment rather than evidence of higher consumption, the agency said.

"The oil price seems to have moved a bit higher in the past month largely on the basis of equity markets and sentiment about potential economic recovery," said David Fyfe, head of the IEA's Oil Industry and Markets Division.

"But we're not seeing it in terms of the preliminary demand data for early 2009."

The IEA's forecast follows a lower demand projection from exporter group OPEC on Wednesday. The IEA also said OPEC was pumping more oil, a sign that higher prices are prompting members to relax adherence to agreed output curbs.

Oil fell after the report was released, with U.S. crude down $1.00 at $57.02 on Thursday. The lower demand forecast was a surprise, as IEA executive director Nobuo Tanaka said Wednesday that the forecast would not change much.

Maintaining its bearish tone, the IEA also said oil stocks in the industrialized world ballooned to a fresh 16-year high in March, and supply from outside OPEC would not fall as far as previously thought in 2009.

"The report is commensurate with the depth of economic contraction we are currently experiencing," said Harry Tchilinguirian, senior oil analyst at BNP Paribas.

"Our view is that positive growth will emerge for the major economies in mid-2010, and on that basis, the IEA's bearish report is not surprising."

The IEA's previous prediction for the decline in 2009 world oil demand was already the largest among analysts tracked by Reuters.

The agency now expects demand to average 83.2 million bpd -- lower than the 84.03 million bpd expected by the Organization of the Petroleum Exporting Countries, which issued its Monthly Oil Market Report on Wednesday.

OPEC has promised to cut oil supply by 4.2 million bpd, equal to about 5 percent of daily world demand, from its output levels since September to try to support prices.

The IEA's report, like that of OPEC on Wednesday, said the group reduced its level of adherence to supply targets in April after several months of lowering supplies.

OPEC's 11 members with output targets in April raised output by 230,000 bpd to 25.8 million bpd, according to the IEA. That reduced its compliance with the cutbacks to 78 percent from 83 percent in March.

The group meets on May 28 in Vienna to set supply policy, and the IEA said waning compliance, plus Angola's request for an exemption from output limits, could make any further cut in the overall supply target difficult.

While seeing higher OPEC supply, the IEA also raised its forecast for production outside OPEC by 50,000 bpd because of stable North Sea output and higher-than-expected data from Russia.

Total non-OPEC supply was forecast to fall to 50.3 million bpd, from 50.6 million bpd in 2008.