The oil market is on a roller-coaster of uncertainty over debt, growth and political paralysis, and clouded by signs of a slowdown in China and India, the IEA said today.
The International Energy Agency trimmed its estimate for global oil demand this year by 100,000 barrels a day because of a downward revision to demand in the second quarter, high prices and 'slowing economic growth'.
The IEA, the energy monitoring arm of the Organisation for Economic Cooperation and Development, said: 'Concerns over debt levels in Europe and the US, and signs of slowing economic growth in China and India have spooked the market and raised fears in some quarters of a double-dip recession'.
'From an oil market standpoint, perceived wisdom is that this must inevitably mean weaker oil demand to come,' it added.
The IEA raised its 2012 forecast by 100,000 barrels a day, anticipating that Japan will increase its oil consumption to compensate for the loss of nuclear-generated electricity in the aftermath of the devastating March earthquake.
Japan is promoting efforts to reduce energy consumption, which the IEA estimated would fall by 4.5% this year. It also noted that of 54 Japanese nuclear reactors which usually cover for 27% of demand for electricity, 'currently only 16 are online'.
The IEA said that oil was on a 'big dipper', with oil prices plunging $12-15 a barrel in about 10 days. Warning that the outlook is very volatile, the IEA said 'August has a habit of springing both geopolitical and meteorological surprises, so the big dipper ride may still have further to run.'
It acknowledged that its assumption of global economic growth of more than 4% in 2011-2012 'might seem optimistic in the present climate.'
Oil prices were firmer after the report was published. Brent North Sea oil for September was up $3.95 to $106.50 a barrel and New York's main West Texas Intermediate light sweet crude contract for September was up $3.13 to $82.43.
On Chinese demand, a key issue in the last five years, the IEA said that 'for the first time since March 2009, China's monthly apparent demand contracted on an annual basis, falling by 1.5% in June.' This data, which should be treated with caution the agency said, was however in line 'with evidence that China's economy is also slowing down.'
Indian demand rose by 1.8% in June, a notably lower rate than in the previous six months and 'the Indian economy has shown signs of slowing.'
Demand in Brazil, an oil producer, grew 2.8% in May but 'high inflation and persistent monetary tightening represented a downside risk to the economy'.
The IEA's new forecasts put demand this year at 89.5 million barrels a day, up 1.2 million barrels or 1.4% from 2010, with 2012 rising to 91.9 million barrels, up 1.6 million barrels or 1.8% from this year. Should global economic activity slow by more than expected, however, the demand figure for this year would be cut by 0.3 million barrels and next year by 1.3 million a day.
The agency noted that extra supplies of oil were now reaching the market, notably because members of the Organisation of Petroleum Exporting Countries had increased supplies in order to make up for a shortfall in Libya.
Another factor was that the IEA had earlier released oil from emergency stocks for 30 days to bridge a period of tightness arising from the strangling of supplies from Libya. The IEA noted that at the end of July it had decided not to renew its 30-day release of oil from OECD strategic stocks but also pointed out that 'nor was the action formally terminated'.
