The most consistent feature of data on global demand for crude oil is how inaccurate they have been over the past year. Tuesday's upward revision to global demand for 2004 by the International Energy Agency (IEA) is the latest instalment in a game of catch-up being played by oil analysts everywhere. Last week the US Energy Information Administration (EIA) also increased its demand forecasts for the current year. Bearing in mind the recent poor record of both organisations, can their simultaneous downward adjustments to 2005 demand be taken any more seriously?
The accuracy of the forecasts, like any forward-looking estimate, is questionable. The IEA sees global demand rising by 1.8 per cent next year, while the EIA is more upbeat at 2.6 per cent. However, both see slower growth than this year. This trend is logical. High prices reduce demand. Projections for global economic growth next year have been scaled back. China remains the important demand swing factor. The IEA has found evidence that Chinese oil demand is slowing, helped by controls on electricity use and fuel switching.
But it will take more than a reduction in the estimated growth rate of Chinese demand by the IEA to alleviate short-term upward pressure on prices. More evidence that demand is being choked off will be required to trigger a significant decline in prices next year. For this, crude prices may need to rise further in the short term.