The International Energy Agency (IEA) has cut its forecast for oil demand growth to its lowest level for 15 years.

It cited economic weakness and "a liquidity crisis" as the reasons.

The IEA has reduced its 2008 forecast by 250,000 barrels per day, to 440,000 barrels, and its 2009 estimate by 190,000, to 690,000 barrels per day.

US light crude was down $4.09 at $82.53 a barrel on the news while London Brent crude fell $3.84 to $79.18 a barrel.

Lack of liquidity

The Paris-based agency blamed global economic weakness and, in particular, the lack of liquidity in world markets resulting from the current financial crisis, for the drop in demand.

The impact of this weakness, it said, was being felt most acutely in developed countries, with developing economies showing "a degree of resilience".

"Although non-OECD slowdown is also likely, it is by no means certain that growth will be choked off altogether. We have yet to see unambiguous evidence of a sharp slowdown in China, while Middle Eastern demand growth remains robust," the agency said.

Falling demand among developed economies has seen the price of oil fall dramatically from its summer highs. US light crude hit a June high of $147 a barrel.

Supply lines

The IEA said the credit crisis was also hitting supply, as it made it difficult for companies to raise money to invest in the industry.

"Credit shortages are rapidly becoming yet another in a long line of impediments to industry investment," the agency said.

Oil producing cartel Opec agreed in September to strict output targets that have so far reduced output by 300,000 barrels a day, "largely due to unplanned outages", according to the IEA.

Global oil supply fell by 1.1m barrels a day in September.

However, it is in the interests of Opec to cut supply in order to put upward pressure on the oil price. If supply falls sufficiently, then oil prices will stabilise.

Opec has called an extraordinary meeting on 18 November in Vienna to discuss "the global financial crisis, the world economic situation and the impacts on the oil market."

(BBC)

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