AFRICA OIL & GAS TODAY

The chills of global downturn
03/31/09, Biodun Omojola

The global economic meltdown is not only affecting the world's financial sector, the oil sector too is feeling its effects. It is expected that oil demand will contract sharply this year than previously expected as the world's developing countries continue to feel the bite of the persistent crisis. In a poll of 10 analysts, banks and industry groups taken by global news agency, Reuters, the consensus was that global oil demand will decline by as much as 430 000 barrels per day in 2009 to about 85 million bpd. The predicted fall is a significant shift from a similar Reuters poll taken last November, which forecast demand would slip by 20 000 bpd in 2009, following a similar decline in 2008.

The poll forecasts an average growth of 650 000 bpd in 2009 for countries outside the Organisation for Economic Co-operation and Development (OECD) compared to 840,000 in the November poll. Global demand was revised lower for 2008 in the latest poll, with analysts saying consumption contracted 140,000 bpd last year as the pace of the global slowdown accelerated towards the end of last year. Global oil demand last declined in the early 1980s, following the 1979 oil crisis and a severe recession in the United States.

The Paris-based International Energy Agency (IEA) also revised its estimate for Chinese GDP growth down to 6.5 percent following years of double-digit growth. Rapidly rising consumption of oil from emerging economies led by China helped push crude from around $20 a barrel at the start of 2002 to peak above $147 in July 2008. Slowing demand has been the lead factor in sending prices crashing back down to about $40. The IEA predicts Chinese oil demand will grow by just 90 000 bpd in 2009 compared to average growth of around 400 000 bpd over the last three years.

However, the largest drop in demand will come from developed economies with growing recession. OECD demand is forecast to fall by more than 1.1 million bpd to about 46 million bpd in 2009, the poll indicated. Global oil demand tends to run about 2 percent below world GDP growth, analysts say. Recession among industrialised economies is expected to slow global GDP growth to just 1.2 percent this year. Analysts believe forecasts for global oil demand in 2009 could be cut further as economists continue to revise down expectations for GDP growth in developed and emerging economies alike. "Most forecasters are still revising down their GDP expectations so predictions are likely to continue to fall," says one.

Some experts are suggesting that oil demand in the OECD may never return to the 2007 peak. They contend last year's record price spike and an increased focus on reducing carbon emissions to combat climate change may hold down fuel consumption even when economies start to recover.