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US Energy Department and IEA cut oil consumption forecasts amid surging prices

US Energy Department and IEA cut oil consumption forecasts amid surging prices

The U.S. Energy Department and the International Energy Agency both lowered their global oil consumption forecasts for this year because of surging prices, but said demand continues to accelerate in developing nations.
The downward revision follows a reduction this month in fuel subsidies by several developing countries that have succumbed to record oil prices. However, the Energy Department and IEA also said demand for oil and fuel continues growing in those regions, particularly in China. Reconstruction work in the aftermath of this year's devastating earthquake will boost Chinese oil demand by 5.5 percent this year, a slightly higher forecast than in previous reports, the IEA said.
The reports raise even more questions about whether the world has inched closer to a tipping point at which high energy prices would force changes in behavior or economic policy.
"There's a debate on that," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. "Some would say we're already there."
Protests are erupting simultaneously from the U.S. and Asia to Europe, as fuel prices cut deeper into the money people need for food and other essentials.
Oil consumption is falling more than expected in the industrialized world, according to the monthly report from the Energy Department's Energy Information Administration. Consumption in nations belonging to the Organization for Economic Cooperation and Development, like Japan, Germany, Britain and the U.S., is now expected to fall by 240,000 barrels a day in 2008. Last month, the department forecast that consumption would be unchanged from last year.
In its own monthly report, the Paris-based IEA, an energy adviser to Western industrialized nations, cut its demand growth forecasts, projecting that global demand for petroleum products such as gasoline, diesel and heating oil will grow by 0.9 percent, or 800,000 barrels a day, in 2008. That's down from the 1.2 percent, or 1 million barrels, the IEA forecast earlier this year.
The Energy Department raised its average oil price projection for 2008 to $122 a barrel from $110 a barrel last month. Next year, oil prices will average $126 a barrel, the Energy Department said, up from last month's forecast of $103.
Oil prices surged to a record of $139.12 last week on the New York Mercantile Exchange. On Tuesday, oil futures traded near $131 a barrel on the Nymex.
"The combination of rising consumption, further downward revisions in the supply outlook for countries outside of the Organization of the Petroleum Exporting Countries (OPEC), and low surplus production capacity reinforce the perception that supply is having a difficult time keeping up with demand growth," the Energy Department said.
Soaring prices are clearly having an impact on demand. The IEA lowered its 2008 global demand forecast to 86.8 million barrels a day, down 80,000 barrels from last month. The agency steadily lowered demand predictions as oil prices climb.
The Energy Department said global oil consumption will rise this year by 1 million barrels per day, down from last month's forecast that consumption would grow by 1.2 million barrels a day.
The IEA predicted U.S. oil demand would contract by up to 2.5 percent this year to 20.3 million barrels a day.
"Airlines are cutting flights. ... Consumers are protesting and politicians' statements reflect that mood," the report said.
Rising fuel prices, and falling subsidies, have sparked protests around the world.
Yet lower fuel taxes or higher subsidies would, the agency said, be "absolutely the worst response."
U.S. presidential candidate John McCain has proposed suspending gasoline taxes for the summer, and French President Nicolas Sarkozy is pushing for a cap on fuel taxes across the 27-nation European Union.
The IEA is preparing a landmark forecast for later this year on the world's oil supplies through 2030, prompted by concern about the volatility of world oil markets and uncertainty about supply.


Updated : 2021-05-17 02:35 GMT+08:00