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High oil prices seen slowing fuel demand

High oil prices are beginning to slow fuel demand growth by hindering the world economy and encouraging energy efficiency in China, the International Energy Agency said on Tuesday.
/ Source: Reuters

High oil prices are beginning to slow fuel demand growth by hindering the world economy and encouraging energy efficiency in China, the International Energy Agency said on Tuesday.

The Paris-based agency cut its forecast for world oil demand growth in 2005 by 320,000 barrels a day to 1.45 million barrels per day, forecasting global consumption at 83.85 million barrels per day.

The projection, in the IEA's monthly oil market report, marks a sharp fall from this year's growth of 2.71 million barrels per day, the biggest increase in petroleum demand in 24 years.

"The cut reflects expectations of slower economic growth and the impact of high oil prices on demand and the economy," said the agency, adviser on energy to 26 industrialised nations.

"The current oil price rally has trimmed prevalent assumptions of global economic growth for 2005, while at the same time galvanising energy saving efforts and fuel-switching away from oil in China...," it said.

This year's explosive growth in fuel usage, led by China, has powered oil prices to all-time highs, carrying U.S. crude above $54 a barrel and London Brent over $51.

The IEA raised its forecast for 2004 growth by 190,000 barrels per day to 2.71 million, partly to reflect a higher assumption about demand in Russia and its CIS neighbours.

But it said early indications were that Chinese growth now was being deterred by prices, slowing in August to an annual six percent from 12 percent in July and 25 percent of the second quarter.

It reduced its forecast for 2005 Chinese growth by 140,000 barrels per day to 360,000 barrels per day, or 5.6 percent, to a total 6.68 million barrels per day.

That compares with expected growth of 800,000 barrels per day, 14.6 percent in 2004 and an increment of 550,000 barrels per day or 11 percent in 2003.

The IEA said conservation measures and new non-oil power generating facilities in China, the world's second biggest oil consumer, had helped rein in demand.

"The deeper factors at play behind the declining import requirements are manifold," said the agency. "Chief among them appear to be the success of energy saving measures, particularly for electricity, which have been implemented since the start of the summer."

Further ahead rapid progress in bringing non-oil energy projects onstream is expected to further slow growth, the IEA said.

The recent completion of the East-West natural gas pipeline is set to boost fuel-switching out of oil for electricity generation in Guandong province.

Hydro-electric, coal-fired and nuclear generating capacity were also on the rise, it said.