The International Energy Agency (IEA) slashed its 2009 oil price forecast to 80 dollars from 110 dollars on Thursday, saying imminent recession is strangling demand in rich countries and crimping emerging economies.
The IEA made further big cuts to its estimates of global demand growth in its monthly report but said that despite recent heavy price falls to the 60-dollar range, prices on futures contracts still hovered around 85 dollars a barrel.
The market was in "unchartable territory" owing to many uncertainties including the extent of the economic slowdown in China and some pressure within OPEC for a further production cut, it said, adding that prices could tighten next year.
"We have lowered our oil price assumption to 80 dollars per barrel in 2009 versus the 110 dollars-a-barrel hypothesis that we had kept over the past three months" largely on the basis of a recent IMF report forecasting that advanced countries would be in recession next year, the IEA said.
The IEA, the oil monitoring and strategy arm of the Organisation for Economic Cooperation and Development, said that "given the economic contraction, a lower price will only have a very limited effect upon oil demand."
In reports at the end of last year and earlier this year, when oil prices were at record peaks, the IEA had reported that high prices were crimping demand through changes in the behaviour of consumers.
In the last few months, however, a cyclical downturn has slowed demand growth, especially in the United States, the world's biggest energy consumer, with the downturn now greatly accelerated by the financial crisis.
"Oil demand is in a tailspin," the IEA said. "But there is scant consensus on the slowdown's scale and duration."
Some economists saw economic contraction in the 30 OECD most developed countries "dragging down China and the rest of the non-OECD, resulting in outright global contraction in both gross domestic product and oil demand."
The IEA said that "while we lack a crystal ball," a recently announced Chinese economic stimulus package "could help avert the first global demand contraction since 1983."
The "current squeeze" had widespread repercussions, the IEA noted, saying: "Slowing oil sector investment in 2009 sows the seeds of a sharp tightening in market fundamentals if major projects are delayed."
It warned that the impact of such a slowing of investment would be felt in three to five years' time "after economic recovery regains a foothold."
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