World oil demand will contract more sharply than expected this year due to the economic crisis, Opec said on Friday, an outlook that may bolster the case for further supply cuts. The Organisation of the Petroleum Exporting Countries said global demand will fall by 580,000 barrels per day (bpd) in 2009 to average 85.13 million bpd.
Its previous forecast was for demand to contract by 180,000 bpd. Oil use is falling this year and in 2008, the first drop in more than 20 years, as recession triggered by the banking crisis spreads through all continents. As demand shrinks, crude prices have fallen below $40 a barrel from a record high near $150 last year.
"World oil demand continues its steep decline from last year and is expected to follow this strong negative pattern at least for the first three quarters of the year," Opec said in its Monthly Oil Market Report.
Still, Opec's prediction of falling demand is less severe than that of the International Energy Agency, adviser to consuming countries, which said on Wednesday that consumption in 2009 would fall by 980,000 bpd. Slumping demand is leading to higher inventories, which Opec said were likely to weigh on prices as demand slows seasonally later in the year.
The prediction that demand will be weaker could bolster calls within the 12-member Opec for more supply curbs to prop up prices and protect revenue from oil sales. Opec, which pumps more than a third of the world's oil, has agreed at meetings since September to cut its oil output by 4.2 million bpd, equal to 5 percent of daily world demand, to combat the slump in prices and demand.
The report said demand for Opec's oil will fall "significantly" in 2009, predicting a drop of 1.7 million bpd compared to 2008. That is steeper than its previous forecast of a year-on-year fall of 1.4 million bpd. Opec oil ministers are next scheduled to meet to set policy on March 15 in Vienna. Some member countries, including Iran, Venezuela and Libya, have already raised the possibility of a further production cut.
But the report indicated that Opec still has more to do in delivering on existing output curbs. A reduction of 2.2 million bpd, a record amount, took effect on January 1, adding to previous cuts of 2 million bpd. In January, the 11 members with supply targets, all excluding Iraq, cut output by 965,000 bpd to 26.33 million bpd, according to data from secondary sources cited by Opec in the report.
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