IEA Warns of Possible Supply Problems Down the Road

Sunday, October 11, 2009

World oil demand will contract in 2009 by the most since 1982 due to extreme economic weakness around the world, the International Energy Agency printed in their monthly energy report.

Supply will be lower than previously expected this year but underlining that the world economy is risking a new price surge when demand recovers.

Global demand is expected to diminish by 980,000 barrels per day to 84,700,000 bpd in 2009 while lsat month the IEA forecasted demand to contract only by 500,000 bpd.

Supply Impact

The IEA also said that future oil supply growth has come under threat from the collapse in prices because new projects are being canceled (members of the Organization of the Petroleum Exporting Countries (OPEC) have delayed 35 new oil projects).

Since oil topped in July, the IEA has cut its estimate of potential supply in 2009 from oil producers by 1 million bpd.

"The danger is that if too much investment slips now, the scale of the price response to resurgent demand could again destabilize the global economy." David Fyfe, head of the IEA's Oil Industry and Markets Division.

Oil trading has been dominated by the bears with futures prices collapsing and the market is in deep contango, which harms Long Oil Exchange Traded Funds like United States Oil Fund.

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