International Energy Agency cuts oil demand forecast as prices plunge

The International Energy Agency on Friday cut its forecast for global oil demand next year as prices continued to plunge because of oversupply and weak economies around the world.

The organization said demand would grow by 900,000 barrels a day to 93.3 million barrels a day.

The estimate is down 230,000 barrels a day from November and was the fourth time in five months the agency had reduced its 2015 forecast.

Several years of record high oil prices led to a surge in production from the U.S. and other nations not part of the Organization of the Petroleum Exporting Countries, or OPEC, while at the same time consumption has fallen because of a weaker global economy, the IEA said.

And the oil market could be volatile for a while, the agency said.

“Barring a disorderly production response, it may well take some time for supply and demand to respond to the price rout,” the IEA said in its monthly oil market report.

Crude oil prices have plunged in recent months to their lowest levels in five years. Friday’s closely watched IEA report helped push them down further.

The price of benchmark U.S. crude oil fell about 2.4% to about $58.40 a barrel Friday morning.

The drop has pushed down average gas prices nationwide below $3 a gallon, with some stations selling it for less than $2.

Federal Reserve officials and economists have said that falling oil prices will help the U.S. economy.

Lower gasoline prices helped fuel a 0.7% increase in retail sales last month, economists said.

But the IEA said the benefits might not be that great for the global economy.

“Oil price drops are sometimes described as a tax cut and a boon for the economy, but this time round their stimulus effect may be modest,” the report said.

The agency noted that producers such as Russia and other “oil-dependent, but cash-constrained economies” are likely to produce and consume less oil next year.

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