Oil Pump Havana Cuba
Oil pump.Reuters

The International Energy Agency (IEA) has cut its global oil demand growth forecast for the fourth time in five months, this time on a weaker outlook for oil exporting countries.

The agency also warned Friday that weak demand and an oversupply in oil markets could raise the risk of global social instability and the possibility of financial defaults.

The IEA on 12 December said global oil demand will grow by 900,000 barrels a day in 2015 — 230,000 b/d less than what it estimated in November — to 93.3 million b/d.

The energy watchdog cut projections because the economies of producer nations were being hurt by falling prices. But most of the reduction in 2015's estimate was attributed to Russia, where sanctions are seen capping growth. The IEA curbed estimates for Russian oil demand in 2015 by 195,000 barrels a day to 3.4 million a day.

Opec Output

The agency said that oil cartel Opec will need to pump an average of 28.9 million barrels a day in 2015, about 1.4 million less than what its 12 members produced in November.

Global inventories may rise by 297 million barrels in the first half of 2015. That could raise stockpiles to 2.87 billion barrels in OECD countries, straining some nations' ability to store, it added.

The IEA also said that it was too early to expect low oil prices to begin restraining the North American supply boom.

The IEA's widely tracked monthly oil market report noted: "Barring a disorderly production response, it may well take some time for supply and demand to respond to the price rout."

Analyst Take

Commerzbank Corporates & Markets said in a note to clients: "The nose-dive on the oil market is likely to stall next week. After all, the week features little news and should therefore give little reason for further selling.

"The number of US oil rigs is increasingly moving into focus. If, after last week's surprising increase, that number were to turn out lower, this might even support oil prices."

Oil prices have lost over 40% since June this year on oversupply concerns and on fears surrounding weak demand from China, the world's second largest oil consumer after the US.