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OPEC

Report: Oil demand slows as production booms

John Waggoner
USA TODAY

Slowing demand for oil and more rapid growth in production point to more energy markets turmoil in 2015, the International Energy Agency said in its December report, released Friday.

The report pushed U.S. benchmark oil futures to $57.81 a barrel and took stock prices with them. The Dow Jones industrial average fell 315 points, or 1.79%, to 17,280.83.

The price of West Texas Intermediate fell $2.14 to its lowest level since May 2009. Brent crude, the international benchmark, fell 77 cents to $61.85.

The IEA reduced its 2015 forecast for growth in global oil demand down by 230,000 barrels a day to 900,000 barrels per day. That would bring demand to 93.3 million barrels per day.

"Several years of record high prices have induced the root cause of today's rout: a surge in non‐OPEC supply to its highest growth ever and a contraction in demand growth to five‐year lows," the IEA said in its report.

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The Organization of the Petroleum Exporting Countries said in November that it would hold its production target at 30 million barrels a day. And Saudi Arabia held a steady pace on exports of crude to world markets during November, the IEA says.

Nevertheless, OPEC members tend to produce more than their target, says Stewart Glickman, group head for energy and materials equity research at S&P Capital IQ. "The inclination to cheat is a chronic situation," Glickman says. "They always overproduce a little compared to stated targets, like speed limits on major highways."

The relentless rise of U.S. oil could push total non‐OPEC production to record growth
of 1.9 million barrels a day this year, but the pace is expected to slow to 1.3 million barrels a day in 2015, the IEA said.

The agency said demand will fall in Russia, the world's third-largest oil producer, as that country slips into recession caused by international sanctions and falling oil prices.

Slowing growth in China and Europe has also weakened demand. China's industrial production rose 7.2% the 12 months ended November. In Europe, France turned in its first negative change in core consumer prices, a sign the country's economy was slowing down and tipping into deflation.

The U.S. Energy Information Agency predicts U.S. gas prices will average $2.60 a gallon in 2015, although that would assume higher prices later in the year. The current average gas price is now $2.60 a gallon, says AAA, the lowest since Dec. 27, 2009. Currently, 46% of stations are selling gas for less than $2.50 per gallon, AAA says.

"There's a transfer of wealth from producers to consumers," Glickman says. While oil companies are feeling the pinch, AAA estimates that consumers are saving about $375 million on gasoline per day, or $100 per month per household, compared to the highs during the spring and summer.




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