Taking an axe to global oil demand

The latest set of economic data out of China suggests a much more severe
economic slowdown is underway there. Hopes of even a slightly decoupled
China in 2009 are fading fast.

Credit Suisse has reduced its expectations of Chinese GDP growth to just 5.8%
for 4Q08, 6% for 1Q09, 6.3% for 2Q09 and 8.5% for 2010. These would be the
lowest levels of economic growth in China for many years.

We have reduced our estimates for 2009 Chinese oil demand growth from 4.0%
to near zero (0.2%). We see some recovery in 2010 back to +5.4%.

A slower China means a slower global economy and we have made reductions
to forecasts for Other Asia, for the Middle East and for the FSU.

We now see 2009 global oil demand down 300 KBD y-o-y, the sharpest drop
since 1982. The global oil market is oversupplied by 1.8 MBD for FY2009, which
is meaningful but not unprecedented. However, the market looks oversupplied
by 2.6 MBD in the first half of the year. OPEC is now in damage limitation mode
and all talk of defending certain price levels is fanciful.

Behind the headline-grabbing shocks to the oil demand curve, however, is the
steadily building story on non-OPEC supply, which remains far from robust.
When oil demand eventually recovers, non-OPEC supply is likely to be falling
faster than market consensus expects, we think.