The International Energy Agency on Friday warned that global oil demand this year is on course to register its weakest growth in 15 years and is likely to log similarly anemic growth in 2009 as the world's financial woes eat away economic activity.
The Paris-based agency, in its monthly oil market report, said world consumption this year is seen rising by just 0.5%, or 400,000 barrels a day, the slowest rate since 1993, and by just 0.8% next year.
Total demand this year is forecast to average 86.51 million barrels a day, though that number is likely to be revised lower. Like the industry in general, the IEA has cut its 2008 world demand forecast in nearly every monthly report this year due to the fallout from the world's financial problems.
"We are seeing a substantial weakening in demand as gross domestic product estimates have come down in the face of the current economic problems," said David Fyfe, editor of the agency's report. U.S. oil prices were at fresh lows for the year again Friday, trading down round $4 a barrel at $82.75 a barrel at 0915 GMT.
The IEA, energy adviser to Organization for Economic Cooperation and Development nations like the U.S., also warned that the ongoing financial crisis is hurting oil exploration projects, a worrying sign for the future because the world's spare pumping capacity remains at historically low levels of just 2 million barrels a day.
"Credit shortages are rapidly becoming yet another in a long line of impediments to (oil) industry investment," particularly in Russia and the Caspian region in Central Asia, the agency said.
The IEA said U.S., European and Japanese oil demand, which accounts for 56% of world oil consumption, is expected to contract by 2.2%, or 1.1 million barrels a day, this year, and fall by 1.3% next year.
The agency reduced its 2008 global oil demand growth forecast by 250,000 barrels and its 2009 outlook by 190,000 barrels a day from its report last month.
But a number of analysts say the IEA is merely playing catch-up to industry forecasts that have long been more pessimistic about the health of world crude demand.
Analysts at Sanford Bernstein have been among the most critical of the IEA's forecasts, calling them recently "inept" and "barely worth the paper they are written on". Bernstein thinks global oil demand is already negative,not lingering just above positive territory, as the IEA believes.
The agency says it adjusts its forecasts after organizations like the International Monetary Fund and OECD update their economic projections. The IMF this week reduced its 2008 global economic growth forecast to 3.9% from 4.1% this summer and is seen cutting its 2009 forecast to just 3% from 3.9%.
Despite increasing concern among oil analysts, the IEA remains fairly optimistic about emerging market demand, which is accounting for most of the growth in oil consumption. The agency kept its forecast basically unchanged for China, the world's second biggest oil consumer after the U.S., projecting oil demand growth of 6% this year and 5.2% in 2009 in the Asian giant.
The IEA said non-OPEC producers are now expected to log supply growth of just 150,000 barrels a day this year, down from original expectations for growth of around 1 million barrels a day.