OPEC lowered its 2008 forecast to 1.20% global oil demand growth, down from 1.28%. It was OPEC's fourth downward revision for oil demand this year. The new price structure and slower global economy "have helped dampen oil demand growth in many regions," the cartel said in its July report.
OPEC, which accounts for about 40% of the global oil supply, now expects 2008 demand to rise by 1.03 million barrels per day, or 70,000 barrels per day less than the group's previous forecast.
On Tuesday, oil plunged $6.44 to $138.74 per barrel -- its biggest decline, in percentage terms, since March 2008 -- following Tuesday morning testimony by U.S. Federal Reserve Chairman Ben Bernanke, during which the Fed chair said credit market write-downs were likely to slow the already anemic U.S. economy even more, Bloomberg News reported Tuesday. Economist Glen Langan told BloggingStocks OPEC's revised forecast is likely to represent another data point the oil bears will like.
Oil price key: Emerging markets
"The question now is, will emerging market oil growth demand slow significantly or will it continue to rise? That's the key, because U.S. demand is down on a year-over-year basis, and if the emerging market demand slows as well, that would be a telling moment in the oil market," Langan said. "I'm not saying we're there yet, but OPEC's lower July oil consumption forecast provides a hint of that."
Some economists, including Langan, argue that the U.S. and global economies -- at least those industrialized nations that do not subsidize oil -- are approaching an inflection point regarding oil. They argue that economic growth is not sustainable with oil prices above $110 per barrel. Others economists disagree, arguing that the industrial economies and emerging markets are capable of growing at adequate levels -- via resource substitution and increased efficiency -- even with an oil price of $150 per barrel.
Oil Analysis: It will be interesting to see if subsequent data from emerging market nations confirms OPEC's reduced forecast. Until that data appears, however, assuming a sustained moderation in oil prices is like assuming a snowfall in Miami: it isn't likely.
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