Oil Demand Expected to Drop Sharply

By GREG KELLER

posted: 173 DAYS 23 HOURS AGO

filed under: Financial Crisis, Crude Oil Prices

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PARIS (May 14) - Oil consumption will this year fall at the sharpest pace since 1981 due to the crisis afflicting world economies, the International Energy Agency said Thursday as it made new cuts to its forecast for crude demand.

In its closely watched monthly survey, the Paris-based agency said it now expects global oil demand to fall 3 percent to 83.2 million barrels a day this year, or 2.6 million barrels a day less than in 2008. It was the ninth consecutive monthly cut that the IEA has made to its oil demand forecast.

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The estimate represents a slight cut to its last forecast of a 2.8 percent drop in demand this year, and comes on top of a 0.3 percent fall in crude consumption last year. It will be the first time oil demand has fallen for two consecutive years since 1982-1983.

Oil prices have jumped from near $50 a barrel earlier this month — and rose above $60 earlier this week — on hopes that the worst of the recession is over in the U.S., the world's biggest oil consumer.

But figures released Wednesday showed that U.S. retail sales unexpectedly fell in April, and the American housing market also continues to struggle.

"New bullish macroeconomic sentiment has not yet produced signs of oil demand recovery and oil market fundamentals remain weak," the IEA said. The agency said its forecast is premised on economic recovery "remaining elusive" this year.

Benchmark crude for June delivery was down 88 cents to $57.16 a barrel by late afternoon in Singapore, in electronic trading on the New York Mercantile Exchange.

The latest economic data indicate that "the 'demand green shoots', if any, continue to be buried under the thick ice of the current economic winter," the IEA said.

In the 30 rich countries belonging to the Organization for Economic Cooperation and Development, the IEA forecasts a 5.1 percent drop in oil demand this year to 45.1 million barrels a day, compared with last month's forecast of a 4.9 percent drop.

In non-OECD developing countries, the IEA forecast a 0.4 percent slide in oil demand this year to 38.1 million barrels a day, down from last month's forecast of a 0.1 percent decline. It will be the first time oil demand has fallen in non-OECD countries since 1994, the IEA said.