The International Energy Agency Monday made a large, 3.7% downward revision to its medium-term forecast for total world oil demand compared with its previous estimate, suggesting the impact of recession and energy-efficiency efforts may help keep future crude price spikes in check.
The Paris-based IEA said it expects global oil demand by 2013 to average 87.90 million barrels a day, down 3.35 million barrels a day compared with its December forecast. The latest projection is a massive 6.24 million barrels a day, or almost 7%, below the IEA's original 2008-13 forecast last July.
But the report also highlights how reduced investment and other "above-ground" factors like resource nationalism in past months are hurting supply. That could yet mean much higher crude prices down the road should economic growth quickly return to rates of more than 3% seen globally prior to the downturn.
Output from non-Organization of Petroleum Exporting Countries is now expected to drop by 400,000 barrels a day, led by Mexico and Russia, compared with a previous expectation for it to increase by 1.5 million barrels a day in the period.
Though criticized at times for missing some big industry developments, the IEA is still seen as one of the more reliable energy statisticians in the industry due to relatively high quality data from its member countries. These include the U.S. and most of the world's biggest energy consumers.
But IEA forecasts, like all others in the industry, are subject to frequent revision. Further, no industry observer has a clear view on how oil global supply and demand trends will play out longer term, in part because of the uncertainty over the size and pace of economic recovery.
With that in mind, the IEA maps out a more shaded approach in its latest medium-term outlook with a lower and a higher economic growth scenario.
Not including 2009, oil consumption globally could grow on average anywhere from 0.5% to 1.4% a year over the next five years depending on economic growth, the IEA said. That's still well below past trends. Up until the past year, world crude demand grew by about 1.5-2% a year earlier this decade.
The steep drop in consumption seen this year of about 3%, which would mark the sharpest decline in about 25 years, accounted for much of the IEA's downward demand revision.
"The [latest demand] numbers were a bit distorted by the forecast for this year...But I don't think anyone out there has a clear idea which of the two paths we're likely to follow in the future, so we make no apology for going with a two-scenario approach," said David Fyfe, editor of the report.
The IEA said its assumption about rising energy efficiency could prove too timid and said a question that should be on everyone's mind is "whether the ongoing shift toward greater energy efficiency will be more pronounced than in the past."
Adding to the demand uncertainty is that even some emerging market nations like China are starting to get more serious about cutting wasteful consumption and implementing measures such as improved vehicle gas-mileage standards.
China and other non-OECD countries will remain the engine behind the growth in world crude consumption, yet the IEA said non-OECD demand is expected to be about 1 million barrels a day lower by 2013 compared with its previous projection.
Demand uncertainty is rattling big producers like OPEC, which fear plowing billions of dollars into new projects and getting stuck with lots of unused capacity that not only acts as a break on price but costs them a fortune to maintain.
The IEA said it expects OPEC's 12 members, home to about 80% of the world's proven crude reserves, to increase their collective pumping capacity by 1.7 million barrels a day by 2014, just about half the level forecast previously. OPEC states have deferred more than 20 longer-term projects.