OPEC Lowers 2009 Demand Forecast Again, More Production Cuts Are Likely

(image: opec.com)

OPEC has once again lowered its prediction of world oil demand in 2009.  The adjustment shows a dramatic reduction in demand expectations, predicting a demand decrease of 580,000 barrels per day (bpd), a much larger decline than the previously predicted 180,000 bpd.  From Reuters: “’World oil demand continues its steep decline from last year and is expected to follow this strong negative pattern at least for the first three quarters of the year,’ OPEC said in its monthly report written by its economists.”

OPEC’s reduction of its 2009 demand forecast follows a similar reduction by the International Energy Agency (IEA) announced on Wednesday.  The IEA forecast adjustment predicted an even steeper drop in demand in 2009, 980,000 bpd.  In addition to the obvious decline in demand for oil, OPEC cited still-growing stockpiles of crude oil in the U.S. and around the world as a force that will continue to depress oil prices throughout the year.

OPEC’s announcement hints at additional production cuts to come out of the cartel’s next meeting in March, as it attempts to match its supply with shrinking demand.  The IEA announced this morning that its research has indicated that further OPEC production cuts would succeed in driving up oil prices, especially in the second half of 2009, Forbes reports.

The combination of the OPEC and IEA announcements sends a clear message: in order to meet still-plummeting demand for oil and finally make an upward impact on prices, OPEC must cut output again in March.