(Photo: Reuters)
(Photo: Reuters)

The International Energy Agency says global oil demand will shrink this year, following weak world economic growth, a European slowdown and worsening business sentiment from some of the world's largest oil consumers.

According to the Paris-based agency's Monthly Oil Market Report published on their website, US budget cuts and negative business sentiment from China will also weigh heavily on worldwide oil demand. 

"Together these three economic hits, affecting as they do the three largest economies and oil consumers, appear to further delay an elusive turnaround in global economic, and in turn oil demand, growth," says the IEA.

The group says that sluggish economic signals spanning several key economies has "underpinned" its reasons for trimming its forecast for oil demand growth by 20,000 barrels per day to 820,000 barrels per day taking the daily demand total to 90.6m barrels per day. 

"This contrasts with a 1.4m barrels per day growth average for non-recessionary years. The subdued growth rate of oil demand now looks increasingly entrenched in the face of high oil prices and weak economic growth," the report said.

The International Monetary Fund trimmed its global economic growth forecast in January by one tenth of a percent to 3.5 percent. China, the world's largest energy consumer, will likely grow by 8.2 percent this year while the United States will see a 2 percent advance. The IMF is forecasting a 0.2 percent contraction for the Eurozone.  

Global supplies increased in February, the IEA said, to 90.8m barrels per day. Supply from members of the Organization of Petroleum Exporting Countires (Opec), which had fallen to a 12-month low in January, rebounded by 150,000 barrels per day to 30.49m barrels per day. Non-Opec supply fell by 60,000 barrels in February to 54.1m barrels per day. 

Oil futures prices reversed their upward course in mid-February but by early-March, prices for benchmark Brent crude fell to nine-week lows

The benchmark futures Brent Crude oil contract is trading over $109 per barrel while the West Texas Intermediate price stands near the $93 per barrel mark.