Global oil demand will grow by less than 1 per cent in 2012, the International Energy Agency (IEA) said on Friday, cutting its oil growth demand forecast for a sixth consecutive month due to a weak global economy.
The agency, which provides energy advice to the world's most industrialised nations, cut its global oil demand growth forecast for this year by 250,000 barrels per day (bpd) to 800,000 bpd.
"This month's report dwells on recent economic downgrades, and resultant weaker oil products demand growth for 2012," the IEA said. "This is providing a ceiling for otherwise stubbornly-high crude prices."
The IEA cited a cut by the International Monetary Fund in its economic projections with the global economy now expected to expand by 3.3 per cent in 2012, a "sharp deterioration" from its previously assume 4 per cent growth.
Oil demand in the most industrialised nations is expected to fall by 0.8 per cent, with gasoline accounting for more than 40 per cent of the decline.
The IEA said latest preliminary statistics for December pointed to a sharp fall in North American oil demand, down 4.1 per cent year-on-year, despite reports of economic resilience.
It linked this to sharp declines for heating oil and liquefied petroleum gas (LPG) thanks to an unseasonably mild winter in the United States.
In line with the weak economic outlook, European oil demand was likely to post the greatest relative decline in 2012, the IEA said, down by 0.3 million bpd from 2011.
"Much of Europe already saw declines in economic activity in 4Q11, and with further drops assumed for the 1Q12, this equates to the technical definition of recession," it said.
A combination of a worsening external environment and weakening internal demand also curtailed the IMF's estimate for economic growth in the emerging economies, to 5.4 per cent for 2012, from 6.1 per cent.
However, the IEA said the non-OECD region will see demand growth of 1.2 million bpd or 2.8 per cent in 2012, helping offset the reduction in OECD consumption.
Despite big cuts in forecasts for oil demand, oil supplies from the Organization of the Petroleum Exporting Countries (OPEC) rose in January to its highest since October 2008, at 30.9 million bpd. The IEA pointed to a steady ramp up in Libyan production and sustained output from Saudi Arabia and the UAE.
Global oil supply rose by 0.1 million bpd to 90.2 million bpd in January, with OPEC supply 900,000 bpd above the group's 30 million bpd collective output target agreed in December.
Non-OPEC supply fell by 0.2 million bpd to 53.2 million bpd in January but the IEA noted that North American light tight oil production and increasing production in Latin America were helping to offset declines elsewhere and should support a strong non-OPEC supply rebound.
The IEA said the market seemed to have "sufficient supply-side flexibility" to deal with the potential impact of international sanctions on Iranian crude supplies and noted that customers of Iranian crude had begun to line up alternatives.
"Despite these assurances, perceptions of impending supply issues are clearly placing a floor under oil prices for now," it added.