MARKETS: Continued economic weakness could drag down world oil demand, but Iran remains wild card

(EnergyAsia, February 2 2012, Wednesday) — For the first time since late 2008, world oil demand fell over the course of a full quarter. That last time marked the start of the global economic crisis that remains very much in play despite efforts by the world’s Central Banks and international agencies to pump trillions of dollars to jumpstart recovery.

According to the International Energy Agency (IEA), global oil demand fell by 300,000 b/d in the fourth quarter of 2011, a clear sign that the global economy was deflating and could continue into the new year.

As a consequence, the IEA said it has trimmed its forecast for this year’s global oil demand growth to 1.07 million b/d compared with 1.26 million b/d in its previous forecast last month. If the world economy remains this weak, the IEA will have to trim this number further and by several times in coming months.

The London-based Centre for Global Energy Studies (CGES) affirmed the IEA’s reading that this could be “a sign of things to come” largely because a quarterly decline has been recorded only nine times over the last 10 years.

It said: “We believe that the effect of weak economic growth and high oil prices on oil demand in 2012 is likely to be more pronounced than either the IEA or OPEC contends.

“Since July 2011 our forecasts of incremental global oil demand have been consistently lower than the predictions of both organisations.”

However, the IEA, OPEC and other agencies caution that tensions between Iran and the West could still flare up and reverse any bearish outlook on oil.

The full version of this story is available in the February 2012 issue of EnergyAsia Report.

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