Commenting on the IEA report, Dan Lewis, research director of the Economic Research Council, a London think-tank, told Al Jazeera that an “oil crunch” is looming as result of oil exploitation projects being shelved amid the current global economic crisis.
“This is fascinating, because what we have seen with the global economic crisis is that while demand for energy has dropped off and oil prices have fallen, investment has dropped off too,” he said.
“That really matters in the oil industry, because the gap between geological discovery from that investment and bringing it to market is 10 years. So ironically, we are getting closer to that ‘oil crunch’ simply because of the economic crisis that we are in now.”
Oil prices fall
The IEA’s warning on unsustainable pace of global demand came on a day that oil in US markets actually fell by four per cent to below $57 a barrel.
At one point, US crude fell to $56.35 a barrel, its lowest price since March 20, 2007.
London Brent crude traded down $2.50, to $53.21 a barrel.
A barrel of oil has dropped about 61 per cent in value from July, when it was trading at over $147 a barrel.
The price fall came as US government reduced its oil demand growth forecast in response to the weakening global economy.
Demand in the US, the world’s biggest consumer of oil, was expected to fall by more than one million bpd for the first time since 1980 this year, the US Energy Information Administration said.
Incidentally, the IEA recently cut its own forecast for 2008 world oil demand growth by 440,000 barrels.
The body may make further cuts to the demand growth forecast in its next oil market report, which is due on Thursday, Tanaka said on Wednesday.
“We are likely to cut demand … because the International Monetary Fund changed its projections on the [condition of the] world economy very dramatically,” he said.
With both demand and prices falling, the Organisation of the Petroleum Exporting Countries said on Wednesday that its member countries may decide on an oil-production cut by the end of the month.
“If the prices continue their decline, most probably Opec will have to take a further decision on a cut in supply,” Chakib Khelil, Opec’s president, told the Reuters news agency.