Johannesburg — OIL's slide from grace over the past four months has been nothing short of dramatic, with prices near two-year lows yesterday even as the International Energy Agency (IEA) said a "revolution" was required to match supply with demand over the next 22 years.
The spot price of London Brent crude, one of the main benchmarks for the oil price, fell below $55 a barrel as growing concern at the effect of the global economic turmoil on oil demand offset concern the Organisation of Petroleum Exporting Countries may cut supply by a further 1-million barrels a day when it meets in Algeria next month.
A supply cut of 1,5-million barrels a day when the cartel met last month had little effect on prices, which have fallen more than 60% since a record high of $147 a barrel in July.
While a report released by the IEA yesterday trimmed previous oil demand growth forecasts between now and 2030, it also pointed to severe long-term supply constrictions.
The World Energy Outlook report says global energy demand will increase 1,6% a year on average, from the 85-million barrels a day of oil the world consumes now, to 106-million barrels by 2030. This is 10-million barrels less than the body projected last year.
Another report, which takes a shorter-term view of the market, is "more than likely" to lower the agency's oil demand forecasts for next year , says IEA executive director Nobua Tanaka.
US figures are also expected to show that US stockpiles have grown. So it is not difficult to see why oil prices are easing.
However, despite weakening demand in the immediate future, Tanaka says the market should take a longer-term view of oil, beyond the prevailing turmoil, or face a worsening supply crunch in future.
"The financial crisis may have eclipsed the focus on longer-term concerns about energy," says Tanaka.
Unless something is done, the world will be more susceptible to supply disruptions and sharp price hikes while greenhouse gas emissions will be driven up inexorably, he says.
"Current trends in energy supply and consumption are patently unsustainable - environmentally, economically and socially - they can and must be altered."
Turmoil in the world's financial markets has already led the IEA, which advises many of the biggest economies on energy policy, to cut its assumption for this year' s world oil demand growth to the lowest rate in 15 years.
The agency says the credit crisis also increases the risk the world's oil reserves will not be drilled fast enough to meet global demand growth.
However, the market still appears to be more focused on the present.
"Fears that global recession is worsening day by day are driving this market down," says Rob Laughlin, senior oil analyst at MF Global. "Demand for oil is deteriorating week by week."
Laughlin says crude oil prices could well head down towards $50 before finding a floor, something that could spur Opec into further trimming oil production.
Tony Twine, senior economist at Econometrix, says Opec appears unable to influence the price of oil for more than the very short term.
This was illustrated by the latest cut in production, which has already taken effect. Twine believes oil will probably continue to trade at $50-$70 a barrel for the next six to 12 months, barring any unforeseen shocks, financial or geopolitical.
Based on latest data, and if the rand remains where it is now against the US dollar, Twine says the price of petrol is likely to fall by R1,35/l next month, taking prices back to levels last seen in January.
And they could fall even further next year, he says. This will have a positive effect on the inflation rate, which has started to recede after hitting 13,6% in August.
"We would have been better off if the rand was still at R8,32/$ b ut the fall of the dollar crude price is much steeper than the weakening of the rand. There are conse-quently still benefits," Twine said.