NEW YORK (Dow Jones)--For years, rising global oil demand was as predictable as the seasons. Not anymore.
A starker economic outlook has some high-profile energy analysts predicting the world will consume less oil next year than this year, notching the first annual contraction since the early 1980s as emerging markets, led by China, cool off.
"We're in a new world now," said Kobi Platt, an economist with the Energy Information Administration, the analytical and statistical wing of the U.S. Department of Energy.
Demand in the most industrialized countries, static for years, tanked as oil soared to new heights this year. Even with U.S. gasoline now 42% cheaper than its July extremes above $4 a gallon, soft demand is expected to linger.
Against this backdrop, the world's oil-demand engine was supposed to be heavy industrial fuel needs and growing auto ownership in emerging markets, some of them enriched by oil exports. For the next several months, at least, that scenario is falling apart as the financial crisis bleeds across borders and challenges the theory that emerging markets have "decoupled" from highly developed ones. While expected to grow, emerging-economy demand may not offset declines elsewhere.
Much of the rise in prices from about $30 a barrel in 2004 was fed by increasing demand in China, where until recently the economy was expanding at a double-digit annual pace. With China's growth slowing, and the country working down oil stockpiles amassed ahead of this year's Olympics, its demand picture has become hazy.
Shrinking demand could make it tougher for the Organization of Petroleum Exporting Countries to install a floor under oil prices that are now less than half of all-time highs above $145 a barrel. OPEC started to rein in supplies this fall, and could go further in a meeting Dec. 17.
Downward Revisions
Credit Suisse, JPMorgan Chase & Co. and UBS have each in recent weeks called for worldwide demand to fall about 300,000 barrels a day next year, from roughly 86 million barrels a day in 2008. UBS also sees a decline in 2008.While modest, it would be the first annual demand downturn since 1983.
Other analysts are revisiting forecasts. The EIA's latest official outlook presumes oil demand rising by 780,000 barrels a day, or 9%, next year, but the agency suggested an update due next week could show growth of less than half that amount.
Merrill Lynch's latest forecast, from about a month ago, has oil demand rising next year even as industrialized countries daily use half a million barrels less oil. "Obviously, in the last few weeks things have deteriorated quite substantially," said Francisco Blanch, Merrill's head of global commodity strategy.
"I think we could see negative oil demand under a global recession," which Merrill views as unlikely, he said.
The International Monetary Fund sees global growth at 3% next year, the most sluggish pace since 2002. World oil demand fell 765,000 barrels a day in 1983, capping four straight years of declines following a price spike, a U.S. recession and a conservation trend. Demand that year was two-thirds of today's, and more dominated by industrialized countries.
The world has consumed more oil every year since. Powering the most recent move higher has largely been demand from China, whose oil demand growth has grown 20% over the past three years, the International Energy Agency says.
The IEA estimated China's demand will grow another 5.2% next year, a projection that could be revised in a monthly oil market report next week.Others are starting to doubt whether the world's most populous country will escape the effects of a recession in the U.S. and Europe. Credit Suisse analysts, in a note trimming their oil price forecast to $60 a barrel next year, said the latest set of economic data from China point to a severe economic slowdown that will hold the country's oil demand growth to 0.2% next year. Plentiful oil stockpiles and slower industrial production should put pressure on demand.
"A slower China means a slower global economy," Credit Suisse said in a note as it also cut demand forecasts for Japan, Korea, the Middle East and the former Soviet Union.
Economic growth in much of the Middle East has been underpinned by high oil prices, helping raise consumption an estimated 6.4% this year. A reversal of prices because of softer world demand could loop back to slow the region's economy, though subsidies also play a role in supporting gasoline consumption.
Many developing countries shield consumers from higher prices with state-set fuel prices, which became a burden on government treasuries when oil prices soared this year. With crude oil off more than 50% from its highs, governments like China's face the question of whether to cut gasoline prices for the first time in two years or introduce a more market-based approach.
Stabilization Ahead?
Sustained lower fuel prices, combined with an economic recovery, could at least lessen the severity of the demand decline in industrialized countries. With gasoline retailing for $2.40 in the U.S., there are signs demand is beginning to stabilize. After plunging a million barrels a day this year, U.S. oil use will fall by less in 2009, the EIA said, affected more by a weak economy than high prices. Domestic gasoline demand demand last week rose to its highest level since August, though it's down about 3% from a year ago.
"To forecast a global contraction in demand next year, you have to see a further steep contraction in U.S. demand," said Antoine Halff, deputy head of research at futures brokerage Newedge USA. "I'm not sure how much further it can decline."
Still, the memory of sky-high fuel prices will favor more public transit, combined trips and more efficient cars.
"North America has started on a multiyear journey toward higher fuel efficiency in transportation," Credit Suisse said.
-By Gregory Meyer, Dow Jones Newswires; 201-938-4377; greg.meyer@dowjones.com
TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackAmericas@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary:
http://www.djnewsplus.com/al?rnd=MsA7vVfxWtWTrXv22V0WJw%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires