WASHINGTON (Thomson Financial) - Global oil demand will soften in the coming months, a top official from the Organization of Petroleum Exporting Countries (OPEC) said today.
'While financial market dynamics have been a contributing factor to record high prices, oil-market fundamentals point to a market which is currently well-supplied and the balance is expected to soften further due to lower seasonal demand in the coming months,' Mohammad Alipour-Jeddi told the International Monetary Fund's policymaking arm, the International Monetary and and Financial Committee.
For 2008, oil demand is expected to grow by 1.2 million barrels per day, at the same level as last year.
But 'with latest economic data pointing to a potential recession in the US, oil demand growth is unlikely to be higher than projected' while 'early indications clearly point to a well-supplied market,' said Alipour-Jeddi, who heads OPEC's Petroleum Market Analysis Department.
In addition to economic slowdown, downward pressure on demand will come from weather-related factors and the negative effect of high oil prices.
'A broad-based US economic slowdown and a much higher risk of recession are bound to have significant ramifications for the world,' he said.
The statement is consistent with those of the finance chiefs gathered here for the spring meetings of the International Monetary Fund and the World Bank, who have noted the US is still very much coupled with the rest of the world.
Alipour-Jeddi said financial market developments and supply and demand fundamentals have been pulling the oil market in opposite directions, the sustainability of which is uncertain.
'How long this duality can continue is a key question facing the oil market in the coming monthsm,' he said.
A weak US dollar, by which oil is priced, has made the commodity cheaper to other countries with stronger currencies. It also has led to tactical asset substitutions, when investors seek to hedge against inflation and the declining US dollar by switching their assets to commodities such as oil, Alipour-Jeddi said.
A weak equity and corporate bond market has 'encouraged' the inflow of speculative money into the higher return commodity markets, contributing to higher prices and volatility, Alipour-Jeddi said. corbett.daly@thomson.com+tfn.newsdesk@thomson.com+tessa.moran@thomson.com tlm/cbd/wash COPYRIGHT Copyright Thomson Financial News Limited 2007. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.