Credit crisis to weigh on oil demand

By Alex Lawler

LONDON (Reuters) - The worsening credit crisis and economic outlook is likely to hit oil demand, weighing on prices and increasing the chance that consumption growth will slow down or even stop next year.

Demand in the United States has slumped, consumption in Japan and Europe has weakened and there are questions over China and other emerging economies. That might, some say, result in no growth in oil demand in 2009.

"China's economic growth is weakening because of concerns over the U.S. recession and the slow growth in the Euro zone," said Victor Shum of Purvin & Gertz in Singapore.

"The Chinese economy is not completely decoupled from the Western economies."

Oil prices fell below $90 a barrel on Monday to an eight-month low, pressured by expectations the financial turmoil will bring a sharp fall in demand. Prices have slid from a record high of $147.27 reached in July.

The International Energy Agency IEA.L, an adviser to 28 industrialised countries whose forecasts are an industry benchmark, now expects world demand to rise by 890,000 barrels per day, about 1 percent, in 2009.

Others say consumption will be much weaker. Banks such as Merrill Lynch in the past week have cut their forecasts for oil demand next year, citing the U.S. slowdown and a weakening outlook in some emerging economies.

Merrill in an October 1 report lowered its 2009 world demand growth forecast to 400,000 bpd. Societe Generale (Socgen) in a report received on October 3 said it had cut its estimate for next year by 100,000 bpd to 800,000 bpd.  Continued...