World oil demand will dive by a hefty 2.4 million barrels per day in 2009, the International Energy Agency (IEA) said on Friday, citing the impact of prolonged economic recession on energy use. As the rate of contraction in oil consumption reached levels last seen in the early 1980s, it said outright demand for this year was expected to be 83.4 million bpd, around one million bpd less than in its previous monthly report. “This is a pretty exceptional period of demand collapsing,” said David Fyfe, head of the oil industry and markets division at the IEA, the Paris-based advisor to oil-consuming countries. He could not say whether there would be further downward revisions. “I think everyone out there is trying to gauge when the recession is going to bottom out. We can't say definitively that global GDP is not going to worsen,” he said. The expectations of a collapse in fuel consumption were not “solely conjecture”, the IEA's report said, and referred to early indications for the first quarter of this year of “much lower” demand in developed and non-developed countries than previously thought. As demand has disappeared, stocks have swollen in developed countries and equated to 61.6 days of forward demand cover in February, a measure closely watched by producer group OPEC, which considers around 52 days comfortable. The IEA said current forward cover was the highest since 1993, although it added “absolute stock levels” arguably provided a more representative view of the market because the demand figure has been cut so deeply. The oil market was closed on Friday for the Easter public holiday, so there was no price reaction to the IEA's report. The Organization of the Petroleum Exporting Countries has agreed to reduce supply by 4.2 million bpd since September. In last month's report, the IEA had said strict adherence with OPEC supply cuts already in place would shrink oil stocks in developed nations by around the middle of the year. But Fyfe said the “reality check” of the first quarter - and its lower demand than previously expected -meant it would take longer for OPEC to balance the market, even assuming strict compliance. “We would probably (now) say it would take them until the end of the year,” he said. The call for OPEC crude in 2009 was 28.2 million bpd, the IEA said, 2.6 million bpd less than last year. OPEC crude supply in March had averaged 27.8 million bpd, down 235,000 bpd from February, and output from the 11 members of the group bound by production targets had dropped to 25.57 million bpd - down 245,000 bpd month on month, but still 720,000 bpd above target output. The IEA assessed OPEC's compliance rate with agreed supply curbs at 83 percent in March, compared with the historical average of around 60 percent. Analysts have said discipline was unlikely to increase much more as members of the group have said current oil prices of roughly $50 a barrel were a good compromise given the weakness of the economy. Another limitation on production is underinvestment as lower oil prices dent profits and companies struggle to get credit lines. The IEA repeated earlier warnings of a possible supply crunch once the economy recovers and energy use picks up and it reported a fall in non-OPEC supplies in addition to the voluntary OPEC output cuts. Non-OPEC supply had shrunk by 170,000 bpd in March and year-on-year, and the IEA expected non-OPEC production to fall by 320,000 bpd. The world is awash with oil and the glut is crimping investment in new fields for the day when demand pulls out of a “relentless” plunge, the IEA said on Friday. “For the fourth time since last October, we have slashed the economic assumptions that underpin our oil demand forecasts,” the IEA said. Chinese demand, it noted, fell 6.9 percent in January-February on a 12-month basis, revealing “fresh evidence” of slowdown. Fyfe said while the Chinese economy should grow about 6.5 percent in 2009, its demand for oil will contract this year on an annualized basis for the first time since 1990. Fyfe noted that there had been a “bounce” in the oil price above $50 a barrel for the first time for four months, “but our indications of oil demand in the first quarter are very, very weak.” The IEA agreed with the view of many international economic institutions that recovery of the global economy would be delayed into 2010. “Any green shoots are signalling recovery developing next year rather than this year,” Fyfe said. While the prospects for lower demand have muted immediate concerns about a “supply crunch,” the IEA warned that resulting low oil prices were undercutting investment in new production. Most experts in the industry “envisage oil supply levels in the next five years seriously constrained by today's lower prices and lower investment,” the IEA said in a regular monthly report. Fyfe warned that “if (oil) companies scale back on spending very sharply in the next one two three years, there's a danger that when demand recovers, the supply side of the industry may struggle to keep up. We could have a supply crunch.” The IEA said it now expected the global economy to contract 1.4 percent this year instead of expanding modestly as previously expected. “This forecast implicitly discards a recovery in both global economic growth and oil demand from the second half of 2009 as we had earlier assumed.” The IEA used graphic language to drive home the pessimistic signals which the oil market is sending about global industry. The agency doubled its estimated drop in global demand this year, adding one million barrels per day to take its total downward revisions so far for the year to 3.3 million bpd. This leaves total demand for 2009 forecast at 83.4 million bpd, about 2.4 million bpd less than in 2008 and the lowest level since 2004. Data for the first quarter showed “much lower” demand than expected and the IEA cut 700,000 bpd from its estimate for the first quarter alone. It said that it had pitched its latest figures in the middle of a range of uncertainty about where “the low water mark” lay. Oil producers were also “scrambling” to cut back on deliveries to limit a build up of inventories which were “now at a giddy 61.6 days (of consumption) for February”, the highest level since 1993. The OPEC had cut its output overall by 235,000 bpd from the February level and by “an unprecedented” actual 3.36 million bpd since September to 27.84 million bpd.
