Oil demand rising, but boom days gone: Expert

Oil demand rising, but boom days gone: Expert

LONDON (Reuters): World oil demand growth will pick up this year as Asia's battered but energy-hungry economies start to recover, BP Amoco's chief economist Peter Davies said on Thursday.

However gains in the coming years will probably be slower than during the early and mid-1990s when the world's need for oil grew annually by about two million barrels per day (bpd), he said.

"World oil demand is increasing again," Davies told the annual conference of the Center for Global Energy Studies.

"Asia has bottomed out and a partial recovery (in economic growth) has begun," he said. "Oil demand in total will probably accelerate."

He said that global economic growth would probably slow further this year to around 1.5 percent from 1.8 percent in 1998 and around 3.5 percent annually in the mid-1990s.

But the projected 1999 slowdown masked a change in the regional composition of global growth that showed sharper increases in growth in the convalescent economies of Asia.

Since Asia normally supplies almost half of global oil demand growth, the growth in gross domestic product growth in Asia would have a disproportionate effect in global oil demand growth.

Asian emerging economies apart from China account for 12 percent of world demand but only six percent of world gross domestic product, he said.

Davies said that as a result, global demand was expected to grow by around 800,000 bpd in 1999 following a rise of just 300,000 bpd in 1998.

Davies cautioned however that there was unlikely to be a dramatic rebound in oil demand in the coming years of the kind seen following the price crash of 1986.

"We aren't going to see a strong bounce back," he said. "Will demand come back to its trend level? -- Probably not."

This was because there would be much less switching back into oil from other fuels because other sources of energy such as gas had become much cheaper.

In addition, Asian economic growth would be much slower, despite continuing population growth and the high energy intensity of Asian economies.

Davies questioned what he said was the "business as usual" consensus forecast of the International Energy Agency, the U.S. Department of Energy and several consultants that oil demand would average around two percent per year between 2000-2010.

He said it was likely that long-term oil demand growth would be offset by other factors including the growth of solar power and the adoption of fuel cell technology in transport.

"The long term trend rate will be tempered by these forces," he said.