Economic crisis to drag on oil demand

The outlook by the International Energy Agency (IEA) echoes similarly pessimistic forecasts revealed this week by the US government and the Organisation of the Petroleum Exporting Countries (OPEC).

The IEA also said oil prices may remain elevated in the next few months as geopolitical tensions, including a stand-off between the West and Iran over Tehran’s nuclear programme, offset the bearish impact of the weaker global economy.

“The geopolitical dimension is likely to continue to provide something of a floor for prices. The issue of Iran will likely continue to weigh heavy on the market through the second half of 2012,” the IEA said in its monthly report.

“Moreover, there is a risk that recent progress in restoring output from Libya, Iraq and Nigeria could be jeopardised if recent political and civil tensions worsen.”

Oil prices plunged below $90 a barrel in June after Saudi Arabia stepped in to raise production to multi-year highs at a time when Iranian exports plunged because of Western sanctions.

Prices have recovered to above $110 a barrel in August supported by Iranian tensions and investors’ hopes for new money printing programmes from global central banks to support the flagging economy.

The IEA said it had revised its forecast for oil demand growth in 2013 down by 150,000 barrels per day (bpd) to 830,000 bpd.