IEA Cuts Oil Demand Forecast to Lowest in Five Years

The IEA expects global oil demand to decline by 2.4 million barrels a day this year, about the same amount that Iraq produces, as the economic slump reduces consumption to the lowest since 2004.

The adviser to 28 nations cut its 2009 forecast for an eighth consecutive month, slashing last month’s estimate by 1 million barrels a day, or 1.2 percent, to 83.4 million barrels a day. The IEA also said oil supply from outside the Organization of Petroleum Exporting Countries will drop this year.

“The pace of contraction is close to early 1980s levels, with a growing consensus that economic and oil demand recovery will be deferred to 2010,” the Paris-based adviser said in a monthly report today.

Demand will shrink by 2.8 percent this year as worldwide gross domestic product shrinks by 1.4 percent, according to the IEA, which until now had assumed the global economy would expand in 2009. The decline outpaces supply from OPEC’s third-largest producer, Iraq, which last month pumped 2.27 million barrels a day.

The outlook “implicitly discards” the agency’s earlier view that industrial activity, and demand for fuels, would recover in the second half of the year. Consumption during the first three months of this year was revised lower by 700,000 barrels a day.

The collapse in demand will be concentrated in the world’s most developed nations, the Organization for Economic Cooperation and Development, where an “unusually severe recession” will curb consumption by 4.9 percent this year.

As a result, crude inventories in these nations are at their highest since 1993, the IEA said. Stockpiles were equivalent to 61.6 days of consumption as of February. In December, OPEC ministers had expressed concern that a level of about 57 days was too high.