Less demand creating world oil glut: IEA

The International Energy Agency cut its estimate for world demand growth this year because it no longer believed economic activity might pick up in the second half.

“For the fourth time since last October, we have slashed the economic assumptions that underpin our oil demand forecasts,” the IEA said, noting also an unexpectedly sharp fall of demand in China.

Chinese demand fell 6.9 percent in January-February on a 12-month basis, revealing “fresh evidence” of an economic slowdown. The IEA said it now expected the global economy to contract 1.4 percent this year instead of expanding modestly as it had 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 presented a series of numbers, accompanied by graphic language, to drive home the pessimistic signals which the oil market is sending about the state of the global industry.

The agency cut its 2009 demand forecasts by another one million barrels per day, bringing total revisions for the year to three million bpd. This leaves total demand for 2009 forecast at 83.4 million bpd, some 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 it sliced 700,000 bpd from its estimate for the first quarter alone.

In a regular monthly report, the IEA 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 “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 Organization of Petroleum Exporting Countries had cut its output overall by “an unprecedented” actual 3.36 million bpd since September to below 28 million bpd, the lowest level since just after the US-led invasion of Iraq in 2003.

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