Anyone counting on a rapid turnaround in the U.S. and global economies may be in for a rude reality. Or perhaps, a crude reality.
OPEC cut its 2009 global oil demand forecast for the eighth straight month on Wednesday, as the cartel said purchases of the world's most important commodity continue to fall, due to the lingering global slowdown (pdf).
In its April report, OPEC says it now sees 2009 global oil demand totaling 84.18 million barrels per day (bpd), or 413,000 bpd lower than the March estimate. Overall, the cartel expects 2009 demand to contract by 1.37 million bpd.
Global recession saps oil demand
"The world economic recession continues to erode oil demand growth, particularly in the U.S., Japan, and China," OPEC said in its report. The cartel expects demand in developed economies to fall this year, with developing countries' demand registering only minor growth.
Oil, which traded Wednesday down two cents to $49.27 per barrel, has fallen about $100 since hitting a record high of $147.27 per barrel in July amid the leveraging bubble. OPEC's revenue this year is expected to fall a whopping 51 percent to about $476 billion, according to U.S. Energy Information Administration research.
OPEC, which produces about 33 percent of the world's oil supply, meets next on May 28 to discuss oil production quotas. In March it agreed to keep quotas the same, which amounts to a 4.2 million bpd cut since its production peek last year.
OPEC doesn't tip its hand
In its report, OPEC gave little indication of its sentiment regarding the likelihood of future cuts – simply stating that accurate monitoring is essential to match global supply with demand. "Vigilant monitoring is essential to assess the likely developments in the second half of the year and the impact these will have on market stability," OPEC said.
OPEC's demand forecast cut comes a few days after the International Energy Agency also cut its 2009 global demand forecast by one million bpd to 83.4 million.
Some economists argue that the world will repeat a slow oil consumption growth pattern that occurred following Oil Shocks I and II, in 1973-74 and 1979-80.
Energy Economist Jim Williams told theglobeandmail.com that it took nearly 20 years, until 1999, for U.S. oil petroleum consumption to recover to levels seen during the late 1970s. He added that although new economic giants in emerging markets such as China will take up some of that slack, even those economies are expected to implement conservation measures and reduce their rate of oil use, as a percent of GDP.
Oil Analysis: The above global oil demand forecast is good news for nations that use a considerable amount of oil, such as the United States, and it's bad news for oil producers and investors in oil stocks. That said, the markets do not want to see a plummeting oil price, which would indicate very weak commercial conditions. A too low oil price will also take too many oil fields out of production, due to lack of profitability – a scenario that would set the stage for the next oil spike, when oil demand growth resumes after the recession ends.
OPEC cuts its oil forecast again