An oil pump or “nodding donkey” operated by Unigeo AS, sits in Krasna, Czech Republic.

The world is awash with oil despite a price rally but the glut is hampering investment in fields which will be needed when demand pulls out of a “relentless” plunge the International Energy Agency (IEA) said Friday.

“For the fourth time since last October, we have slashed the economic assumptions that underpin our oil demand forecasts,” the IEA said, noting also an unexpectedly sharp fall of demand in China.

Chinese demand fell 6.9 percent in January-February on a 12-month basis, revealing “fresh evidence” of an economic slowdown.

The IEA said it now expected the global economy to contract 1.4 percent this year instead of expanding modestly as it had previously expected.

“This forecast implicitly discards a recovery in both global economic growth and oil demand from the second half of 2009 as we had earlier assumed.”

The IEA presented a series of numbers, accompanied by graphic language, to drive home the pessimistic signals which the oil market is sending about the state of the global industry.

The agency cut its 2009 demand forecasts by another one million barrels per day, bringing total revisions for the year to 3 million bpd.

This leaves total demand for 2009 forecast at 83.4 million bpd, some 2.4 million bpd less than in 2008 and the lowest level since 2004.

Data for the first quarter showed “much lower” demand than expected, and it sliced 700,000 bpd from its estimate for the first quarter alone.

In a regular monthly report, the IEA said that it had pitched its latest figures in the middle of a range of uncertainty about where “the low water mark” lay.

Oil producers were “scrambling” to cut back on deliveries to limit a build-up of inventories which were “now at a giddy 61.6 days (of consumption) for February,” the highest level since 1993.

The Organization of Petroleum Exporting Countries had cut its output overall by “an unprecedented” actual 3.36 million bpd since September to below 28 million bpd, the lowest level since just after the US invasion of Iraq in 2003.

OPEC output, at 27.84 million bpd in March, down 235,000 bpd from February, was at its lowest level for five years after three agreed reductions in the cartel’s official production target totaling 4.2 million bpd since September.

Saudi Arabia had held output steady in March at 7.95 million bpd, “about 100,000 bpd below its target.”

Global oil supply was down 400,000 bpd in March to 83.4 million bpd, with non-OPEC supply dropping 170,000 bpd.

The IEA noted that oil prices have rallied to above US$50 for the first time in four months on “more bullish sentiment” in financial markets at the end of March but said this “masked” persistent weak price signals.

While the prospects for lower demand have muted concerns about a “supply crunch,” the IEA warned that resulting low oil prices could undercut investment in future production.

Most experts in the industry “envisage oil supply levels in the next five years seriously constrained by today’s lower prices and lower investment,” it said.

The drop in oil demand was now close to that seen in the early 1980s but a repetition of the four-year downturn then seemed unlikely, the IEA added.

Source: AFP