PREVIEW-EIA may cut oil demand on weaker economy, oil price

Mon Feb 7, 2011 10:14pm GMT

* WHAT: EIA's Short-Term Energy Outlook report

* WHEN: Tuesday at noon EST (1700 GMT)

* Smaller U.S. job creation, expensive oil hurts demand

* International Energy Agency, OPEC to release forecasts

* EIA had biggest 2011 oil demand growth among 3 forecasts

By Tom Doggett and Ayesha Rascoe

WASHINGTON, Feb 7 (Reuters) - The U.S. government may lower its forecast for global oil demand as higher crude prices and weaker economic growth could cut into petroleum consumption.

The U.S. Energy Information Administration report is the first of major global oil demand forecasts coming out this week, with the International Energy Agency and OPEC both releasing their outlooks this Thursday.

The new EIA forecast follows weaker-than-expected U.S. job creation for January, which showed the economy produced only 36,000 new jobs during the month, far less than expected.

Weaker job growth along with expensive crude oil, which topped $100 a barrel for Brent crude following the political unrest in the Middle East, could translate into less oil use.

"High oil prices if sustained will slow demand," said Phil Flynn, energy analyst at PFG Best in Chicago.

Tim Evans, energy analyst for Citi Futures Perspective, said a combination of high energy prices and bad winter weather could reduce oil use, especially for transportation fuels.

"If we cancel a bunch of flights. If we can't drive...then that hurts oil demand," he said.

Evans also said the prospect for strong oil demand growth is limited by the continued high unemployment rate. "So the longer it takes for us to see an employment impact from the economic recovery, the longer it will be until we see robust fuel demand," he said.

But Matt Smith, an energy analyst with Summit Energy in Kentucky, said oil prices would have to go way above $100 a barrel to really hurt the global economy.

Smith called the U.S. jobs report misleading, noting that manufacturing is showing its fastest pace of growth since 2004 and the services sector is growing at its fastest rate since 2005.

The EIA last month raised its estimate for global oil demand growth this year by 20,000 barrels per day to 1.45 million bpd for a 1.7 percent annual growth rate.

In its first outlook for 2012, the agency said in its January report that oil demand should grow by 1.9 percent, or 1.63 million bpd.

Global oil demand growth this year and next will be above the recent 10-year average of about a 1.2 percent annual increase, according to the agency.

The EIA's forecast normally falls in the middle of the separate oil demand outlooks put out by the International Energy Agency and OPEC. But EIA had the biggest oil demand growth among the three forecasts issued last month.

IEA raised its oil demand growth forecast in January by 80,000 bpd for 2011 to 1.41 million bpd and OPEC increased its global oil use outlook by 50,000 bpd to 1.23 million.

(Reporting by Tom Doggett; Editing by Lisa Shumaker)

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