Energy watchdog, the International Energy Agency (IEA) has warned last week that mild weather, high oil prices and a rising likelihood of a global recession will depress demand in 2012. "Oil demand is falling for the first time since the global economic crisis of 2008-2009, Reuters reported, quoting IEA's monthly report.
The IEA noted that although worries about disruptions to Iranian oil exports have supported prices, consumption fell in the last quarter of 2011 year-on-year due to mild winter weather in the northern hemisphere and the overriding fears about an impending recession in the euro zone.
"Two inherently destabilising factors are interacting to give an impression of price stability that is more apparent than real," it said.
"The first is a rising likelihood of sharp economic slowdown, if not outright recession, in 2012", the IEA said.
It added: "The second factor, which is counteracting bearish pressures, is the physical market tightening evident since mid-2009 and notably since mid-2010".
The Paris-based agency, which advises industrial countries on energy policy, cut its global oil demand estimates as the threat of the euro zone debt crisis and restricted private sector credit remained. The agency also reduced its 2012 demand growth forecast by 220,000 barrels per day from its previous monthly report to 1.1 million barrels.
Further downgrades to global GDP estimates will trigger cuts in estimates of global oil consumption, it said, adding that a one-third cut to GDP growth would see this year's oil consumption unchanged at 2011 levels.
"This alternative scenario is based upon the very real possibility that Europe's current financial and economic woes - with many nations already bogged down in the early stages of recession - remain unsolved, spilling over into significantly lower growth elsewhere," it said.
Mild winter weather, the European economic malaise and elevated oil prices also contributed to a drop in demand in the last quarter of 2011, down 300,000 barrels per day to 89.5 million barrels, and "pushing demand back towards a clearly declining year-on-year trend for the first time since the global credit crunch".
Tensions with Iran over its nuclear programme, together with worries about Nigerian and Iraqi supplies, have kept prices above $100 a barrel.
Iranrecently warned neighbouring Gulf Arab oil exporters against raising output to replace the barrels it loses as it faces international sanctions.
It has also threatened to disrupt flows in the Strait of Hormuz, a chokepoint through which around a fifth of global oil output passes.
"At least a portion of Iran's 2.5 million barrels per day crude exports will likely be denied to OECD refiners during second half 2012, although more apocalyptic scenarios for sustained disruption to Strait of Hormuz transits look less likely.
"European refiners could get some short-term support from the closure of three Petroplus refineries, but the IEA said that even if the company were to shut down all five of its plants, a looming embargo on Iranian crude and potentially reduced gasoline demand from Nigeria could still provide further challenges ahead", the report added.