Oil demand to post biggest drop since 1981

Reuters | Thu, 14 May 2009 16:21
[miningmx.com] -- OIL fell towards $57 a barrel on Thursday after the International Energy Agency (IEA) forecast global oil consumption will fall this year at the fastest rate since 1981.

The Paris-based IEA, adviser to 28 industrialised nations on energy policy, said the rise in oil prices to a six-month high above $60 this week was due to sentiment rather than supply and demand fundamentals, with consumption set to fall by 2.56 million barrels per day (bpd) in 2009.

"The oil price seems to have moved a bit higher in the past month largely on the basis of equity markets and sentiment about potential economic recovery," David Fyfe, head of the IEA's Oil Industry and Markets Division, told Reuters.

"But we're not seeing it in terms of the preliminary demand data for early 2009."

U.S. crude fell 70 cents to $57.33 a barrel at 1316 GMT, having hit $60 a barrel on Tuesday.

London Brent fell 57 cents to $56.77.

The agency said oil demand is expected to average 83.2 million bpd in 2009, down from its previous forecast of 83.4 million bpd. Crude stockpiles in developed countries have risen to the highest level since 1993 due to the global recession.

"The report is commensurate with the depth of economic contraction we are currently experiencing," said Harry Tchilingruian, senior oil analyst at BNP Paribas.

The Organization of the Petroleum Exporting Countries (OPEC), which has announced 4.2 million bpd of production cuts since September in a bid to tighten the market, also pumped more oil last month than in March, the IEA said.

OPEC members' compliance with production quotas has fallen to 78 percent in April from 83 percent a month earlier. The producer group next meets on May 28.

NIGERIA UNREST

Top OPEC exporter Saudi Arabia shares the view that prices have moved ahead of the economy, the Saudi-owned al-Hayat newspaper reported on Thursday, citing French sources after the French economy minister met Saudi King Abdullah and his Oil Minister on Sunday.

Equity markets were mixed on Thursday, after weekly U.S. employment data showed a larger than expected rise in the number of workers filing new claims for jobless benefits.

Oil prices have tracked equities markets closely in recent months as traders looked for signs of an economic recovery that could lift ailing world fuel demand. A rally in stock markets this year has helped lift crude prices almost 80 percent from a January low of $32.70.

European shares were flat on Thursday ahead of U.S. weekly jobless claims and April producer prices at 1230 GMT.

Unrest in Nigeria, Africa's biggest oil producer, provided some support for oil prices.

Nigeria's main militant group on Wednesday ordered oil workers in Africa's biggest oil producer to leave the delta within 24 hours following heavy clashes between MEND and security forces.

The Movement for the Emancipation of the Niger Delta (MEND) on Thursday gave oil companies in the Niger Delta an additional 48 hours to evacuate their staff, but threatened to attack helicopters and planes after the deadline.

A security source working in the oil industry said it was taking the threat seriously, but there were no plans to evacuate staff.