IEA Cuts 2012 Oil Demand Forecast, Warns of Further Decline

By Grant Smith

(Updates with comment from IEA's Fyfe in third paragraph.)

Jan. 18 (Bloomberg) -- The International Energy Agency reduced its 2012 global oil demand forecast, after consumption fell in the fourth quarter for the first time since 2009, warning it may cut estimates further.

Worldwide crude consumption will increase by 1.1 million barrels a day this year, or 200,000 less than previously estimated, to 90 million barrels, the IEA predicted in its monthly market report. A portion of Iran's exports will probably be denied to customers in developed economies in the second half of the year, as European Union leaders prepare tougher sanctions to deter the country's nuclear program, the agency said.

"The risks are to the downside for the global economy and oil demand growth," David Fyfe, head of the agency's market and industry division, said in a telephone interview from Paris. "There's an uneasy calm in oil prices from conflicting pressures of the potential for a sharp slowdown in demand, and geopolitical risks on the supply side."

Oil demand will shrink in developed nations in 2012 as Europe's sovereign debt crisis crimps growth, according to the IEA. Still, Brent crude futures have advanced by 4 percent this year, trading at about $111.50 a barrel today, as concern of a recession are balanced by risks that Iran will retaliate against an EU ban on its crude exports.

Modest Growth

Global consumption will increase by 1.2 percent in 2012, the IEA estimates. Demand in the most industrialized nations will shrink by 300,000 barrels a day, or 0.7 percent, this year, while fuel use in emerging economies will grow "modestly," by 1.4 million barrels, or 3.2 percent, the agency said.

The demand assessment may be reduced further, depending on economic growth revisions from the International Monetary Fund and other institutions, the IEA said. The IMF will release its next assessment of world gross domestic product on Jan. 24.

Chinese oil consumption growth for this year was cut to 4.3 percent, down from the 5.2 percent predicted in December, according to the IEA. The nation's demand gain will account for 40 percent of the global increase.

"Clear signs of economic weakness tipped global oil demand into a declining year-on-year trend at the end of 2011," that was intensified by crude prices above $110 a barrel, the Paris- based adviser to consuming nations said. "Euro-zone indebtedness has not gone away. Oil demand will likely confront this growth-impeding combination of a weakening economy and high crude prices through the early stages of 2012."

Libya Recovery

The Organization of Petroleum Exporting Countries, which provides about 40 percent of the world's oil, is pumping about 890,000 barrels a day more than the average amount that will be required from the group this year, according to the report.

OPEC's 12 members boosted output by 240,000 barrels a day last month to a three-year high of 30.89 million a day, led by a "rapid" recovery in supplies from Libya, the agency said. The organization will need to supply an average of 30 million barrels this year, in line with the output target agreed by members at their last meeting on Dec. 14, according to the IEA.

Oil inventories held by companies in developed economies remained below their five-year seasonal norm for a fifth consecutive month, according to the report. Stockpiles in the Organization for Economic Cooperation and Development rose by 4.1 million barrels to 2.6 billion in November. That's equivalent to 57.5 days worth of consumption, the IEA estimates.

An EU ban on Iranian crude imports, which could come into force within six months, may tighten the global market in the middle of the year, the agency predicted.

--With assistance from Sherry Su in London. Editors: Raj Rajendran, John Buckley.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net