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ME oil demand 'to stay robust in 2009'

Dubai, February 7, 2009

Oil demand growth in the Middle East will slow but stay robust in 2009 as governments in the world's top exporting region boost spending to cushion the impact of the global economic slowdown, said experts.

The deteriorating world economy was expected to burn less oil for the second consecutive year in 2009.

But while demand contracts elsewhere, the International Energy Agency (IEA) expects cheap fuel to lead to Middle East consumption rising by around 200,000 barrels per day (bpd) or nearly 3 percent.

'Demand for transportation fuels in Saudi Arabia and Iran will continue to give support in the region because the fuel is still heavily subsidised in these countries,' said Eduardo Lopez, senior analyst at the Paris-based IEA said.

Saudi and Iranian gasoline is among the world's cheapest and six years of economic growth fuelled by record oil export revenues has increased the number of vehicles on the roads.

Demand for power generation in Saudi, Iran and Kuwait and feedstocks for petrochemical plants were also expected to bolster consumption, Lopez added.

The IEA pegs Middle East oil demand at around 7.2 million bpd in 2009, up from 7 million bpd in 2008. Annual growth as a about half as much as the previous year.

Middle East demand growth was likely to outstrip that of China, a much larger population and the main driver behind global demand growth and the rally on oil prices from around $20 a barrel in 2002 to the July 2008 peak above $147. Chinese demand was expected to rise by 90,000 bpd in 2009.

'In a year when you have a big oil price drop, and a global recession, all things considered demand for the region actually looks relatively healthy,' said Mike Wittner, analyst at Societe Generale.

The Middle East boom came to an end last year as oil prices collapsed. While Arab oil producers would be reluctant to dig into their massive foreign reserves, they have pledged to raise public spending to sustain growth momentum.

'To a certain extent the economies of the Gulf are likely to be in a good position to weather the financial storm,' Raja Kiwan of PFC Energy said.

'Although certain state budgets will suffer from a precipitous drop in oil receipts, prudent management of the economy has allowed these states to both pay down debt and amass substantial reserves.' PFC has similar oil demand growth volumes for the Gulf and Iran as the IEA.

For now at least, Middle East economies were expected to continue growing. The International Monetary Fund trimmed its growth forecast for the region by 1.5 percent in January, but said growth would still be around 3.9 percent.

Transport fuels

While high prices in the past few years have contributed to moves toward increased energy efficiency in many consuming countries, subsidised fuel has insulated most Middle East consumers from price variations.

In Saudi Arabia, demand growth is a cause of growing concern for the government.

'The speed of growth there is beginning to cause some panic,' said an oil industry source in the kingdom. 'They are not talking about raising subsidies but I think there are some serious discussions about ways to improve efficiency.'

Saudi oil product demand was expected to rise about 90,000 bpd in 2009, according to PFC data. Iranian oil product demand was seen growing a similar amount.

Lower crude production as the region's members of the Organization of the Petroleum Exporting Countries (Opec) could also lead to higher demand for oil products. Much of the region's natural gas is produced as a by-product of oil.

When oil output falls, so does gas output. That could lead to a shortage of gas for power stations, which would switch to burning oil products.

In Iran, lower international oil prices will actually take some of the pressure off the government b


Tags: Middle East | Spending | robust | Oil demand |

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