THE EXPECTED IMPACT OF THE CRISIS ON THE OIL
MARKET CONDITIONS
Crude oil prices reached a record high of US$ 147 per barrel (US$/b) in July 2008 on the back of a six-year commodity boom cycle driven mostly by demand from developing countries.1 However, as of August 2008, oil prices plunged rapidly as demand from the Organisation for Economic Co-operation and Development (OECD) countries came to a sudden halt and recession loomed as the financial crisis severely
impacted the global economy (IDS, 2008, p. 5). In an attempt to curb falling prices, the Organization of Petroleum Exporting Countries (OPEC) introduced a series of cuts in output. At the time of writing, oil prices have begun to stabilize at levels ranging in the mid US$ 40 per barrel
OIL DEMAND
According to the EIU, world oil demand is falling. It is estimated that demand fell by 0.2 per cent in 2008 and expected to fall by 0.4 per cent in 2009. Plummeting world demand is largely driven by falling consumption in developed countries. Indeed, preliminary estimates point to a decline of 2.9 per cent in oil
demand in OECD countries in 2008. A further drop of 1.8 per cent is also forecast in 2009. Reduction in demand in OECD countries is largely due to falling demand in North America, estimated at about 2 per cent in 2009, and in Europe, estimated at 1.7 per cent.
Non-OECD demand for oil is forecast to grow by 1.4 per cent in 2009 and by 2.3 per cent in 2010.Underpinning these estimates is the expected increase in demand in developing countries. However, even if that demand is expected to increase, it will not be sheltered from the consequences of the global economic turmoil, as it is forecast to grow at a slower pace over the short-to-medium term. Broadly speaking, growing oil demand in developing countries has recently been driven by two major components, namely increasing demand in both China and India and Arab oil-exporting countries. Hence, the extent to which oil demand in developing countries will be impacted largely depends on the underlying elements in each of the abovementioned components. The expected slowdown in the demand for oil in emerging countries is greatly dependent on the demand outlook in China and India which is, in turn, related to their growth prospects.According to the EIU, Chinese oil consumption will grow by just 2.5 per cent in 2009 (down from a 4.8 per cent growth the previous year), and by 3.5 per cent in 2010.