Global oil demand to rise: IEA

By Vikram Barhat | July 13, 2010 | Last updated on July 13, 2010
2 min read

While U.S. crude production plummets in the aftermath of the BP oil spill, global demand for crude is set to soar next year.

Fuelled by economic growth in developed countries, world oil demand is predicted to rise, according to an International Energy Agency (IEA) report. The growth indicates a shift in global consumption where emerging economies are more than making up for the loss of rich countries’ appetite for oil.

The IEA’s 2011 outlook for world oil demand growth is not dissimilar to that of Canadian economists and forecasters. There is little new information in the IEA report, says Earl Sweet, senior economist and managing director, BMO Capital Markets Economic Research.

“Emerging markets such as China have been driving oil demand growth for the past decade, with demand in the West essentially flat,” says Sweet. “The IEA’s forecast for oil demand growth next year is consistent with our macro view that global economic growth will be a little below 4% and that growth in the U.S. and Canada will be 2.9% and 3% respectively.”

The Paris-based IEA’s monthly report on oil predicted global oil demand for next year to rise by a daily 1.3 million barrels to 87.8 million barrels a day.

That’s a 1.6% year-over-year growth, boosted by a 3.8% annual increase in demand from emerging economies such as China. It further said non-OECD Asia, the Middle East and Latin America will continue to command the lion’s share of oil demand growth in 2011.

Sweet, however, says the IEA’s forecast is not exceptional, and neither will be its sectoral impact.

“Notwithstanding month-to-month volatility, we expect WTI (West Texas Intermediate) to be relatively steady on an average annual basis, averaging US$78 per barrel this year and US$85 next year.”

This could be considered the norm for the next several years and probably has been for the past few years, he says. The only deviation from this longer-term trend came from the speculative binge in 2008 — which drove prices well above average — and the global recession in late 2008-2009, which temporarily drove prices substantially lower.

“Generally, the IEA report is consistent with continued strong growth in emerging markets, which should support demand growth for a wide range of commodities,” says Sweet.

Barring another downturn, he asserts, business conditions for resource-based companies should be positive during the next several years.

The IEA reports the BP oil spill in the Gulf of Mexico caused delays to new projects that shaved 30,000 barrels/day off both 2010 and 2011 U.S. crude production. The proposed moratorium on deep-water offshore drilling in the U.S., if approved, could cause a further dent.

Sweet is quick to dismiss any suggestions that the deficit will have a significant impact on global supply.

“The Gulf of Mexico oil spill, to the extent that it reduces oil production in that region, should not have a meaningful impact on the global supply of oil and thus on oil prices, given that OPEC’s substantial excess productive capacity would allow it to make up for lower supply in the Gulf of Mexico.”


Vikram Barhat