High prices appear to be stemming global oil demand, according to the west’s energy watchdog, which on Tuesday pointed to signs of slower demand in the US, China and other Asian countries.
Recent moves by some Asian countries to cut fuel subsidies had curbed demand, the International Energy Agency said in its April monthly report. It also cited anecdotal evidence that US motorists were switching from fuel-thirsty sports utility vehicles to smaller cars as a factor.
“From the demand side, it would appear that the risks are, for the first time in two years, edging towards the downside,” the agency said.
The high oil price and its effect on world economic growth will be high on the agenda at the Group of Seven leading industrialised countries meeting in Washington on Friday before the International Monetary Fund and World Bank spring meetings at the weekend.
The IMF warned earlier this month of the risk posed to the global economy by rising oil prices.
Jean-Claude Juncker, Luxembourg’s prime minister, meanwhile, warned at yesterday’s meeting of European finance ministers that rising crude prices were “beginning to weigh rather heavily” on economic growth potential, particularly in the eurozone.
The Paris-based IEA on Tuesday noted increasing reports of moderating growth in China, which last year accounted for about a third of the total global rise in demand for crude. The agency accordingly revised lower its outlook for global demand growth, by 50,000 barrels a day this year to an average of 84.3m b/d in 2005. But it said this would not be enough significantly to soften high prices due to the limited global spare capacity for oil production and refining.
The agency’s report nevertheless helped cool the market on Tuesday, with benchmark US crude oil futures sliding more than $1 to $52.70 a barrel. However, the IEA’s forecast of slowing demand was not endorsed by the Organisation of the Petroleum Exporting Countries, which releases its monthly oil market report on Friday.
“International Energy Agency optimism that high oil prices are curbing demand are not shared by Opec,” said one Opec official, who added that Chinese demand was strong in March, and looked to be continuing this trend in April.
Saudi Arabia, Opec’s largest producer, underlined its concern about sustained global oil demand by asking contractors to bring on new production capacity at its Haradh field four months ahead of the original schedule for the 2006 first quarter.
The IEA noted that many developing countries in Asia recently raised government controlled prices.