Oil demand down worldwide, tapering off in China — further price and demand cuts predicted

High prices constrain demand — even in oil — though the wags said it was different this time. FT:

The energy watchdog of the Organisation of Economic Cooperation and Development’s latest oil market report revised its 2005 demand forecast down slightly. Meanwhile, call for oil produced by members of the Organisation of Petroleum Exporting Countries is seen averaging 28.5m barrels a day during the year, a rise of 400,000 b/d over 2004 but well below March output of 29.1m.

With Opec’s installed capacity by the end of the year put at some 32m b/d, wintertime scare stories of insufficient spare capacity are blowing away.

So current demand is less that 90% of capacity, and trending downwards versus previous estimates. China is not immune as well to the laws of economics, it turns out:

Meanwhile China, the global motor of 2004’s demand surge, show signs of more moderate growth in 2005. January-February demand grew by 5.4 per cent or 340,000 b/d, against 20.8 per cent in the same period last year. The IEA cautioned that it was too early to tell if Chinese economic growth was slowing but it maintained its forecast that oil demand growth would almost halve to 7.9 per cent in 2005. With global interest rates having shifted higher as well, the report argues, “From the demand side, it would appear that the risks are, for the first time in two years, edging towards the downside”.

We started writing about oil and China on March 18, and in that brief time the widespread predictions of unstoppable demand have, it seems for the moment, come a cropper. Shortly thereafter, Goldman Sachs, proprietor of a huge commodities trading operation, made the $105 oil price prediction; at the time we questioned the prediction — it seems even further off the mark today.

Leave a Reply