July 13, 2010 6:38 pm

IEA forecasts slowdown in demand for oil

The rapid rebound in oil consumption is likely to slow next year as western countries adopted more fuel-efficient vehicles and the recovery faded, the International Energy Agency said on Tuesday.

The Paris-based energy watchdog for 28 industrialised countries predicted that oil demand would grow by 1.35m barrels a day next year to 87.84m barrels a day.

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The change would be less than the 1.77m b/d gain in oil demand predicted for 2010 compared with 2009.

The forecast, coupled with new supply from countries including Brazil, Colombia, Ghana and Oman, as well as ethanol refineries, could protect the global economy from the kind of energy shock that lifted crude to $147 a barrel in 2008 and exacerbated the economic slowdown.

“In short, markets in 2011 may prove ‘not too hot, not too cold’,” the IEA said in its monthly oil market report.

“Whisper it quietly, but we might, just might, be in for some market stability for a while longer.”

The US Department of Energy foresees oil demand growing by 1.47m b/d next year.

Opec, the oil cartel, issues its monthly report on Thursday.

Crude rallied alongside global equity markets on Tuesday, reflecting strong correlations with other risky asset classes.

Nymex August West Texas Intermediate rose $2.20 to $77.15 a barrel while ICE August Brent gained $2.28 to $76.65 a barrel.

The IEA said Opec’s spare supply cushion could remain as high as 6m b/d “until well into 2011”, potentially tempering any short-term pinch in supply.

Meanwhile, demand in western countries is set to decline.

Antoine Halff, deputy head of research at brokers Newedge, said: “Two years ago people thought supply scarcity and runaway demand meant prices would go up forever.

“But the market is cyclical and we’re now in a bear market – comparatively speaking – that might last a few years.”

Eduardo Lopez, IEA senior oil demand analyst, said: “There is nothing to suggest the market will tighten at least until mid-2011.”

Some analysts take a more bullish view. Barclays Capital has forecast that crude will average more than $90 a barrel and global demand will grow by 1.59m b/d in 2011.

Elsewhere in commodities, spot gold rose 1.6 per cent to $1,215 an ounce as the move by Moody’s to downgrade Portugal’s credit rating reawakened fears over the eurozone debt crisis.

Other precious metals gained, with silver up 2.1 per cent at $18.27 an ounce and palladium 2.8 per cent higher at $464.75 an ounce.

In agricultural markets, CBOT July wheat hit a six-month high of $5.3675 a bushel, gaining support from drought in Russia and other parts of Europe.

Liffe July cocoa hit a 33-year peak of £2,650 a tonne before falling back to £2,600.

Some European cocoa processors and traders have complained to NYSE Liffe about manipulation of the cocoa contract, citing unusually high open interest.

Open interest on the July contract was at 29,000 lots on Tuesday, just two days before expiry, although it has fallen from more than 50,000 lots last week.

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