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IEA Says Oil Demand Slowing As US Changes Lifestyle


A man cycles past barrels filled with fuel in Jakarta. Oil demand in North America "shrank for the seventh month in a row, by 2.9 percent year-on year in July," the IEA said on the basis of preliminary data. (AFP image)

PARIS - The IEA cut its estimate for global oil demand this year and next on Wednesday, saying consumers mainly in the United States are changing their lifestyles in response to high prices.

Oil demand in North America "shrank for the seventh month in a row, by 2.9 percent year-on year in July," the IEA said on the basis of preliminary data.

Sharp revisions to June data meant that North American demand in June fell by 5.3 percent on a 12-month comparison.

The oil price rise and economic slowdown had been "devastating" for US consumers.

Overall North American demand, which grew by 119,000 barrels per day last year, would fall by 748,000 barrels this year, it forecast.

The International Energy Agency's monthly report, written before OPEC cut output by 520,000 barrels per day, said that OPEC supplies had already fallen in August by 195,000 barrels per day.

The IEA said this had left OPEC supplies in August at 32.5 millon barrels on production problems in Iraq, Angola, Libya and Nigeria.

OPEC set its new production ceiling, excluding output by Indonesia and Iraq, at 28.8 million barrels per day.

As prices fell towards 100 dollars a barrel in August, "weaker OECD demand and higher stocks (of oil) dominated sentiment", the IEA said.

The head of the oil industry and markets division at the IEA, David Fyfe, commenting on the OPEC decision, told AFP: "Anything that removes supply from the system could be potentially difficult. That said, market fundamentals have eased."

But commenting on the oil price, he said "we would note that 100 dollars per barrel is still pretty high in anyone's language" and "removing supply from the market may prove counter productive."

He said: "There's a growing body of evidence that high prices in conjunction with weakening economic conditions, are having an impact on people's lifestyles which could last."

And he observed:"I think there are elements in OPEC which are concerned about that."

The IEA report said: "There are clear signs that weakening economic prospects plus high prices are causing behavioural shifts and purchasing choices in the OECD countries."

It was not clear that these changes would continue if prices weakened further, the report noted, reporting a sharp easing of demand in developed countries but strong growth in some developing countries, many of which subsidise consumption.


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The report, which foresaw the OPEC decision, cited reports suggesting that some OPEC countries wanted to aim for a price floor of 100 dollars per barrel.

But it was also suggested that "Saudi Arabia and others" in the Organization of Petroleum Exporting Countries "may see a lower floor of perhaps 80 dollars per barrel", mindful that high prices would depress consumption in the 30 countries of the OECD.

So far the oil market had largly shrugged off the threat of hurricanes to production in the US Gulf, but this remained a danger, the report said.

Global demand will still expand this year and next, the IEA said, but it cut back its estimate of the growth by 100,000 barrels per day this year and 140,00 barrels per day next year from its estimates only a month ago.

Economic slowdown and substitute energies were factors, and businesses were making fundamental changes to the way they operated.

"Demand in the US may be poised for a more permanent, rather than transient, downward trend," the report said.

"Sustained high prices and sluggish economic activity are arguably likely to reinforce the current wave of structural adjustments, which could further reduce US consumption per capita in the medium to long term.

"Anecdotal evidence of this transformation includes the marked shift to more efficient vehicles, changing mobility and driving habits, signs that suburban living is gradually losing its appeal, and ongoing modifications in business practices."

The IEA, an offshoot of the Organisation for Economic Cooperation and Development (OECD), provided the following data and estimates.

World oil demand this year would average 86.8 million barrels per day, an increase of 700,000 barrels per day or 0.8 percent from the 2007 level. Next year demand would total 87.6 million barrels per day, an increase of 900,000 barrels per day or 1.0 percent from the 2008 level.

But demand in the advanced OECD countries was expected to fall this year because the impact of slowing economies and high oil prices "was more marked than expected, notably in the United States."

The IEA said that a sharp easing of Chinese demand after the Olympic Games was uncertain and that other factors in China remained unclear, largely because "China's often-cited, impending economic slowdown remains elusive."

Furthermore, several countries in Asia were beginning to go back on cuts in "untenable" subsidies for fuel consumption, the report said, citing Taiwan, Thailand, the Philippines and Malaysia, in response to widespread discontent at high prices.

Fyfe commented: "In developing countries where demand is subsidised, demand remains pretty robust...that is where growth in demand will come."


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