Energy Agency Reduces Forecast for Oil Demand

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But because of lagging investments in new sources of oil, the growth in consumption is still expected to outpace new supplies, according to the latest monthly report by the International Energy Agency, a policy adviser for industrial countries.

Global oil demand is expected to grow at a slower pace than previously expected this year as a result of record prices and shrinking subsidies in some emerging countries, a leading energy forecaster said on Tuesday.

But because of lagging investments in new sources of oil, the growth in consumption is still expected to outpace new supplies, according to the latest monthly report by the International Energy Agency, a policy adviser for industrial countries.

“These abnormally high prices are largely explained by fundamentals,” the report said. “Supply growth so far this year has been poor and higher prices are needed to choke off demand to balance the market.”

Oil consumption is expected to reach 86.8 million barrels a day in 2008, 800,000 barrels a day higher than in 2007. In January, the energy agency expected demand to grow by 2 million barrels a day this year. In its latest report, the agency pared its forecast by 80,000 barrels a day from last month.

It is the fifth time that the energy agency has cut its outlook in the face of rising prices. In part, demand will slow as India, Indonesia, Malaysia, Sri Lanka and Taiwan lift some fuel subsidies. Energy subsidies in developing countries have been blamed for shielding consumers from the true cost of energy, and encouraging consumption.

In developed countries, oil demand is expected to fall by half a million barrels a day this year, almost entirely on a drop in consumption of 510,000 barrels a day in the United States, to 20.28 million barrels a day.

Still, slowing demand in industrialized countries will be more than offset by growth in China and the Middle East. Chinese oil demand is expected to rise by 410,000 barrels a day, reaching 7.95 million barrels a day this year, while Middle East consumption is expected to rise by 330,000 barrels a day, to 6.84 million barrels a day.

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