?We could have a tighter market once again from around 2011 onwards?
2 Dec, 2008 09:43 pm
Scitizen asked David Fyfe, head of the Oil Market Division at the International Energy Agency (IEA), what is happening with oil demand around the world. He thinks demand has slowed down as a result of high prices and the economic crisis, but it may resume in some years, after the current recession. (Special dossier - Oil demand around the world: suppression or destruction? 1/4)
We are not so much looking at a shrinking of oil demand, just a very dramatic slowdown of what had previously been a very strong growth. Thatís an important distinction to make. We are basically seeing a levelling off in global oil demand, after several years of growth in rates of 1,5 % plus per annum, and itís very clear that this is due to the combination of sharply rising oil prices through 2007 and into the first half of 2008 followed by a very sharp global economic slowdown.
In fact demand itself is contracting in the OECD countries, but we would point out to the fact that in the developing countries, the non-OECD countries, demand is still growing.
So itís quite a nuanced picture.
Would you say we are looking at demand destruction (structural) or demand suppression (temporal)?
Thatís the million-dollar question. We Ė I mean, all of us who are trying to analyse this - are trying to get to grips with which of these two we think is going to be the key element. In parts of the OECD, particularly in North America, there may well be some structural components, and we have seen a shift in buying patterns, particularly for motor vehicles, which could be something that is difficult to reverse. In other words weíve seen a real drop off in purchases of SUV and very fuel intensive private vehicles, in favour of much more economic vehicles. So that could be a sign of a structural change.
The next few months will show us the extent of that structural change. We have fuel prices, in the USA for example, residing back towards two dollars per gallon, once again. In the next few months, although they are likely to be difficult for the USA economy, it will be interesting to see the impact of rather lower fuel prices once again. It will take some months for us to be able to answer that question for the USA market.
Now if we look at the non-OECD, the developing world, we do see much more: itís a slow-down there rather than a contraction of oil demand. And there are still many economies in the developing world that subsidise petroleum products to end users to a very large extent. That to a large degree has cushioned the impact of the rise in oil prices that we saw through 2007 and the first half of 2008. The real driver though is economic growth. Much will depend on when the developing world economies, and the OECD economies, begin to pull out of the economic slow down.
Our view, or the view that we take from bodies such as the IMF and so on, is that economic slowdown is going to be transient, and may last 2009 and into 2010, but that from 2010 onwards economic growth picks up again. In that environment, we would expect oil demand growth to also pick up again, in a global basis. But of course there is very little consensus on exactly how long and how intense the economic slow-down is going to be, so we need to watch that very carefully.
What impact do you think this will have on the energy market, especially in terms of the investments in new programs?
Just looking at the oil side of things, obviously the fact that demand has really slowed on a global basis, very sharply, the fact that crude oil prices have come down very sharply over the past three or four months, and the fact that we are in the middle of a credit crisis, it is forcing oil companies to revisit some of their investment plans and their spending plans. Now if we are in a world in which economic growth will relatively quickly resume at more normalised levels, then the implication is that the deferral of oil upstream investment projects currently could lead to quite a sharp rebound in the market in years ahead, and Iím thinking of 2011, 2012 and beyond. Because if we get global oil demand growth again reaching levels of, letís say 1,5 % per annum, the supply side of the industry from 2011 onwards may struggle to keep up with that level of growth, so we could have a market, a tighter market once again, from around 2011 onwards.
Interview by Olivia Sohr
Oil demand around the world: suppression or destruction?