With a global credit crunch already under way and fears growing of a possible recession in the US, this month's report from the International Energy Agency, released Friday, was keenly awaited to give an insight into where demand for oil is heading. The results, however, are tricky to interpret.

On the surface, the report seems paradoxical. The agency has repeated its warning that high prices are starting to hit oil demand, particularly in the rich countries of the OECD. But its overall assessment for the demand outlook for next year has been revised upwards, with global consumption now expected to grow by 2.5%.

Part of this is a statistical anomaly, inasmuch as outright demand estimates were revised downward for 2007 but upward for 2008, exaggerating the gap between the two.

Underneath this, however, there is a clear picture that expected strong growth in oil use in parts of the developing world are not suffering from the gloomy headlines in the US and elsewhere.

This is not just true of China, whose growing thirst for oil has been well documented, but also of the Middle East region. Better known as a producing rather than a consuming zone, demand in the Middle East is nonetheless growing very rapidly--faster than in China and not far behind it in absolute terms either.

Clearly any recession in the world's major economies would be expected to have an impact on demand, but this is not happening yet, and it's not the IEA's business to predict a recession before it happens. It's also clear that rich countries are much more resilient to high oil prices than they were in the 1970s, and their demand for oil is so far proving to be more inelastic than some might have expected.

Posted by Richard Swann on December 14, 2007 12:53 PM | Permalink