Following the lead of the IMF, which recently forecast a significant drop in global economic activity this year, the International Energy Agency reduced its forecast for world oil demand by 1 million b/d. Global demand for 2009 is now forecast to be 83.4 million b/d, 2.4 million b/d below 2008.

The IEA says that OPEC production fell by 235,000 b/d in March, but is still about 720,000 b/d above the target that was reaffirmed at the March 15th OPEC meeting. Non-OPEC production slipped by 170,000 b/d last month, and is now forecast to average 50.3 million b/d in 2009, 300,000 b/d lower than in 2008. The drop in non-OPEC production is seen as being mainly in the biofuels sector, as low oil prices are hurting their competitiveness.

The new forecast changes the IEA’s previous assumption that economic recovery and increased demand for oil would start in the second half of 2009. The Agency now believes that global economic recovery will be delayed to 2010. Most of the drop in demand will be in the OECD countries, although the Agency now sees Chinese demand dropping by one percent this year instead of the small increase it had been forecasting.

The IEA is still talking about serious shortages in the years ahead due to lack of investment in new production projects which it sees as falling by 20 percent this year.