IEA Cuts 2008 Oil Demand Forecast for Fourth Month (Update2)

By Bill Murray

May 13 (Bloomberg) --


The International Energy Agency, the energy adviser to 27 nations, cut its forecast for global oil demand in 2008 for a fourth month as record prices crimp consumption in the world's most developed economies.

The forecast was cut by 390,000 barrels a day to 86.84 million barrels a day, from 87.23 million barrels last month, the Paris-based agency said today in its monthly report. After today's revision, which "may not be the last,'' the group expects world consumption to grow 1.2 percent this year, the slowest expansion since 2006.

Oil prices have doubled over the last year to $126.40 a barrel yesterday, and record energy costs may cause a global recession, IEA Executive Director Nobuo Tanaka said last month. Crude may rise to between $150 and $200 within two years as supply stagnates, Goldman Sachs Group Inc. analysts led by Arjun Murti said last week.

"Oil prices are too high for everyone, especially for developing countries which are also facing other price increases,'' Tanaka said at a conference in Paris today. "There's no clear single explanation for the high oil prices.''

Stockpiles
Stockpiles of crude and oil products in the developed economies of the OECD fell by 1.3 million barrels in March to 2.56 billion barrels, the IEA said. That's enough to satisfy demand in the world's most developed economies for 53.3 days and was little changed from last month, the group added.

"It's not surprising when you get a doubling of price to $120 a barrel that you get a reduction in demand,'' Lawrence Eagles, head of the IEA's Oil Industry and Markets division, said today in an interview. The reduction "is concentrated in developed economies at this point.''

Demand in both in China and the Middle East will rise 4.9 percent this year, making up for a drop in demand from North America and Europe, the IEA said. Countries in Asia, including India and Indonesia, subsidize fuel to allow consumers to buy at below-market prices.

Indonesia, where subsidies on fuel will reach $12 billion in 2008, is under increased pressure to reduce them, while China may spend about $45 billion subsidizing oil refiners who suffer from fuel price caps.

Crude oil for June delivery rose 48 cents at $124.71 a barrel in electronic trading on the New York Mercantile Exchange as of 1:03 p.m. in London. The contract earlier fell as much as $1.13 to $123.10.

There's a decoupling, part of which "is based on price subsidies and as prices go up, these subsidies become considerable,'' Eduardo Lopez, an analyst at the IEA, said in a television interview. "Countries in Asia are struggling to keep them. Prices can't continue to rise indefinitely, something will have to give.''

OPEC Production
The Organization of Petroleum Exporting Countries, whose members produce more than 40 percent of the world's oil, will need to supply an average of between 31.3 and 31.6 million barrels a day of crude this year in order to balance global demand, less than April's 31.9 million a day, the report said.

"If we start seeing demand down by this amount, it should have an effect on the market,'' said Robert Montefusco, a broker with Sucden (U.K.) Ltd. in London. "I think OPEC has been right to say the market has a lot of crude around.''

U.S. President George W. Bush will ask Saudi Arabia, the world's largest exporter, to increase oil production when he visits the kingdom later this week. A previous request by Bush for OPEC to raise output was snubbed when he visited in January.

"OPEC representatives appear to have dismissed the idea that releasing more crude to the market would affect runaway crude prices,'' the IEA report said.

OPEC will stick to its current schedule of meeting in September and won't produce more crude in the meantime, said Iran's OPEC Governor Hossein Kazempour Ardebili and Venezuelan Energy and Oil Minister Rafael Ramirez this week.

Saudi Output
Saudi Arabian crude output was down 30,000 barrels a day to 8.77 million barrels a day in April, the IEA said. Iran produced 3.93 million barrels a day, less than last month's 4.02 million, the group said.

Biofuels will contribute about two-thirds of the total growth in non-OPEC fuel production this year, increasing by 425,000 barrels a day, the report said. Total non-OPEC supply will average 50.4 million barrels a day in 2008, an annual increase of 680,000 barrels.


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