Record weak demand for oil

Demand for oil will fall by largest margin in 25 years

* Tim Webb, industrial editor
* The Observer, Sunday 28 December 2008
* Article history

Gloibal demand for oil in 2009 will fall by the largest amount for 25 years, according to the chief energy economist of Deutsche Bank.

Adam Sieminski said oil prices could hit a low of $30 a barrel next year, a fall of a quarter from today's price, because of the sickly global economy. He forecast an average price of $47.5 for the whole year for oil traded in New York. Deutsche Bank predicts global demand will contract by 1 per cent, or 1 million barrels a day, three times the fall seen this year and the biggest since 1983.

Sieminski is predicting much lower prices than most other analysts and even Opec or the International Energy Agency (IEA). He said that other forecasts underestimate how much the global downturn would reduce demand for oil. The IEA forecasts that global demand for oil will rise by 400,000 barrels per day next year, but is expected to slash its numbers next month after the IMF revises down its economic growth projections for 2009.

Citigroup is forecasting an average of $65 per barrel next year. Barclays Capital is predicting $76, although it said there was a greater risk that prices would undershoot rather than exceed this figure. Dresdner Kleinwort forecasts $84.50. Oil prices averaged just under $100 in 2008 as soaring prices in the first half - they hit a record $147 in July - countered the recent slump.

If Sieminski is right about lower prices next year, it is good news for motorists in particular. Households should also see lower utility bills as gas prices are index-linked to the cost of oil. A continued slump in oil and gas prices, however, could make the cost of using alternatives to fossil fuels to generate electricity, such as wind farms or nuclear power, uneconomic. This will make meeting Britain's climate change targets even harder.