Opec sharply revised down its forecast for world oil demand for this year and expected consumption would remain weak in 2012, citing yesterday waning economic growth in key industrialised nations and a weak US driving season.
The 12-nation group that supplies about a third of the world's crude oil slashed its global oil demand forecast by 150,000 barrels per day for 2011 and by 40,000 barrels per day for 2012, saying "turbulence in world economic recovery has resulted in considerable uncertainty for demand growth next year."
It also lowered its estimate for crude produced by Opec nations by about 100,000 barrels per day in 2011.
"Uncertainties in the oil market are increasing at a time when the recovery of the global economy is losing momentum and is becoming less evident," Opec said in its September monthly oil market report. "Over recent months, a deceleration of economic growth was observed in almost every major economy."
Oil prices have swung sharply over the past few weeks, affected by volatility in the equities markets. Investors and economists are increasingly worried that the global economy is headed back into a recession amid staggering debt woes in Europe and a decision by credit ratings firm Standard & Poor's to cut the US debt rating from its top tier level.
The concerns about an economic slowdown have been coupled with uncertainty over supply, as output from Opec member Libya largely stopped because of its civil war, which has now dragged on for over five months.
Worries about Libyan crude supplies helped propel the Brent futures contract well above $120 per barrels in the summer earlier, keeping it at a more than $20 premium to its US-based futures contract, West Texas Intermediate.
To cool prices, countries belonging to the Paris-based International Energy Agency released 60 million barrels of crude into the market to offset tight supplies over the summer. But the IEA's new chief said last week that she does not foresee the need for an additional release of crude from strategic reserves.
Yesterday, WTI was trading down to near $85 per barrel on electronic trading on the New York Mercantile Exchange while Brent on the ICE Futures exchange was down over $2 per barrel at a little over $110 per barrel.
Opec has left its members' output quotas unchanged for over two years, declining to raise production targets during its last meeting in Vienna in June. But with concerns building about a new global recession, Saudi Arabia and Kuwait unilaterally boosted their exports as a way to cool overheated prices.