Global economic woes to curtail oil demand - report
Despite this month's recovery in crude oil markets, apparently driven by rising hopes for a plan to address the European debt crisis, global credit-watch firm Fitch Ratings said it sees the potential for global demand conditions to soften further over coming weeks as concerns over the outlook for the global economy mount.
Signs of a slowdown in energy demand growth have been apparent since mid-summer and have been confirmed in data releases from various sources this week.
In its monthly report on world energy market conditions, the International Energy Agency (IEA) revised down its 2011 world demand forecast by 50,000 bpd and cut its 2012 expected demand figure by 210,000 bpd to 90.5 million bpd.
Risks of further revisions are skewed to the downside given the potential for a double-dip recession in the OECD economies, the firm said.
While weak demand in the developed economies has been factored into traders- expectations for months, Fitch said it believes the more significant development this fall is a slowing growth rate in emerging market energy demand.
Chinese demand in particular appears vulnerable to increasing weakness as imported energy needs decline relative to previous forecasts.
Trade figures released by the Chinese government on Thursday indicated that September oil import volumes declined by 12% year over year, as export demand growth slowed compared with August.
Fitch said it views a more dramatic pull-back in emerging market oil demand as the biggest risk factor for world oil prices moving into 2012.
Weakening demand in the developed economies for exports from China and other emerging markets could erode imported oil demand further over the next few months.
Fitch has noted that in one hypothetical scenario involving a slowdown in Chinese GDP growth to less than 5%, crude oil prices could drop by 20%.
Crude oil prices were driven up earlier in the year in part as a result of the loss of Libyan high-grade oil supplies (about 2% of world output). Saudi Arabia and other OPEC producers increased output to offset the shortfall.
However, as Libyan production comes back on line and European demand growth slows, the potential exists for global demand to decline relative to supply, potentially pushing down crude prices and narrowing the spread between the Brent and West Texas Intermediate (WTI) benchmarks.
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