Oil producing group OPEC cut its global oil demand growth forecast for a fourth consecutive month on Tuesday, citing an economic downturn in developed countries and efforts by China and India to curb fuel consumption.
The economic downturn is taking its toll on the world oil demand, OPEC said in its monthly report. The decelerating U.S. economy, high unemployment rate and feelings of uncertainty among consumers, has damped U.S. oil demand. Similarly, debt problems in the euro zone are causing EU economies to lose some of their estimated growth this year.
The Organization of the Petroleum Exporting Countries (OPEC) cut its forecast of global oil demand growth this year by 180,000 barrels per day (bpd) -- enough to feed a mid-sized refinery.
OPEC, which pumps a third of the world's oil, now sees 2011 demand growing by just 0.88 million bpd to 87.81 million bpd.
It is the first time this year that OPEC has cut its oil demand growth estimate to below 1 million bpd. Next year, it sees oil demand growing slightly faster -- by 1.19 million bpd, down 70,000 bpd from its previous estimate in September.
Speaking of its main economic concerns, OPEC said a default had become the most likely scenario for Greece and cannot be ruled out anymore, and added that the European oil demand was not expected to show any growth next year.
Growing uncertainties regarding the sovereign debt issue in the euro zone and the sharp slowdown in U.S. growth have substantially raised the risk of a contraction or at least deceleration of growth in global output, it said.
Deepening concerns over Europe's sovereign debt crisis and slowing global growth are weighing on oil prices, which on Tuesday were trading around $108.50 per barrel, around $19 below their 2011 high reached in April.
The impacts of debt crises in the U.S. and the euro zone will not disappear quickly. For these reasons, many analysts consider the onset of another economic recession in the next couple of years a high possibility, OPEC said.
It said a worse-than-expected performance of the U.S. economy might drag down world oil demand growth by as much as 200,000 bpd in 2012.
But it added that a likely third round of quantitative easing in the United States, combined with the latest positive U.S. jobs data, suggested the world's largest oil consumer might avoid a very deep slump.
It seems that while the (U.S.) economy is feeling the stress of the global slow-down and the sluggish development in the domestic market, it is expected to continue growing and the likelihood of a double-dip -- at least for now -- seems to be off the table, said OPEC, which expects the U.S. economy to grow by 1.6 percent this year and 1.8 percent in 2012.
CHINA, INDIA CURB DEMAND
On the bullish side for oil prices, OPEC said non-OPEC supply would be lower than expected this year, but because demand was falling more quickly, OPEC faced no pressure to compensate for any supply loss.
OPEC cut its 2011 non-OPEC supply growth forecast by 140,000 bpd to 360,000 bpd due to lower output in Canada, the UK, Brazil and Azerbaijan.
In 2012, non-OPEC producers would still be able to increase supply by 830,000 bpd, mostly unchanged from OPEC's estimate last month, due to high output from Brazil, Canada, Colombia and the United States.
OPEC said its own output fell by 77,000 bpd in September to 29.90 million bpd and should average around the same level in 2012 to meet demand on OPEC's crude.
On the demand side, developing nations would remain the engine of growth, although OPEC added that Chinese oil demand was not expected to be as robust because of new government policies aimed at reducing transport fuel use.
It seems that China is trying to engineer a soft landing in 2011, with economic growth averaging around 9 percent for the year, it said.
China has removed incentives that have pushed new car registrations up for the past few years. Higher retail petroleum prices also slightly suppressed oil demand, mainly transport fuel, in the past three months, OPEC said.
India's increase in retail prices is playing a major role in easing domestic oil consumption next year, OPEC said.