LONDON (Dow Jones Newswires), Aug. 10, 2011
The International Energy Agency said Wednesday that a double-dip recession could reduce energy demand enough to push global oil markets into surplus next year, although it made only small adjustments to its current forecasts despite the deepening economic gloom.
This assessment indicates that the recent plunge in international oil prices, down more than 12% at Tuesday's close compared with the start of August, could have some way further to fall if developed economies do slip back into recession.
However, given the tremendous economic uncertainty and the current finely balanced state of the oil market, the IEA warned against pre-emptive action from oil producers to defend high prices. "There is no justification at the present time for OPEC to think of substantially adjusting production downwards," said David Fyfe, head of the Oil Industry and Markets Division at the IEA.
OPEC members have so far made a "concerted effort" to keep the market well supplied, the IEA said in its monthly oil market report. Its most important member, Saudi Arabia, raised production in July to its highest level in 30 years, as it filled the gap left by lost Libyan exports, it said.
If global growth this year and next falls below 3%--a level previously said by the International Monetary Fund to be indicative of recession--oil demand could be significantly lower than current forecasts, the IEA said. Such an outcome could push the world's need for crude from the Organization of Petroleum Exporting Countries below the group's current production, it said, implying a market in surplus.
The IEA made clear this was only one possible scenario and has only slightly trimmed its current 2011 demand growth estimates despite growing signs of trouble in major consuming countries the U.S. and China. However, it also warned that these forecasts were based on the most recent IMF global growth estimates of over 4% for this year and next, which, "may ultimately prove too optimistic," in the current economic climate.
The IEA noted "serious concerns" about the U.S. outlook given weak second quarter GDP and high fuel prices. In recent days, the IEA, the U.S. Energy Information Administration and OPEC have all slashed their demand forecasts for the U.S. The IEA now expects U.S. oil demand to fall by 200,000 barrels a day, or 1%, this year.
China, the world's second major engine of oil demand, is also looking weaker. "For the first time since March 2009, China's monthly apparent demand contracted on an annual basis, falling by 1.5% in June," the IEA said. "The decline coincided with evidence that China's economy is also slowing down and that higher end-user prices are weighing upon demand."
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