Global oil demand last year was the weakest in nearly a decade, and Opec may be under-estimating the weakness of demand, which may exert downward price pressures, Dr. Fereidun Fesharaki, president of Facts Inc and co-chairman of the Ninth Middle East Petroleum and Gas Conference, warned yesterday.

"Global oil demand grew nearly 700,000 bpd in 2000, of which around 522,000 bpd came from Asia, significantly down from the 800,000 bpd growth in 1999," he said. Fesharaki attributed the demand weakness to high oil prices and the strong U.S. dollar.

He expected Asian demand to touch 650,000 bpd in 2001, and global demand at 800,000-900,000 bpd, but pointed out the recovery of South-East Asia remains fragile. He felt even with low non-Opec supply additions, and with Opec under-estimating demand weakness, prices in the mid-$20s would seriously harm demand and set up the market for a big fall.

"Opec might face a situation where almost all the new demand growth will go to non-Opec producers, with the resulting decline in Opec market share, which would be hard to recover," he said. He listed Japan, Indonesia and China as potential flashpoints in Asia that could have a bearing on prices, but noted that China remains the most important new consumer of Mideast crudes, followed by India.

On regional refining capacities, he noted that the east of Suez markets continue to be plagued by excess refining capacity. The improvement in margins last year was primarily due to the Mina Al Ahmadi accident in Kuwait, and the Balongan shutdown in Indonesia. "These temporary boosts to margins have disappeared, and the situation looks extremely difficult for two or three years," Fesharaki said.

On the natgas market, he said both the Mideast and Asean gas grids would become a reality by 2005, fundamentally changing the role of gas in the energy mix. "New LNG contracts will be different as buyers will ask for better benchmarks, shorter contract terms, and more take-or-pay flexibility."

On the regional scenario, he felt the entry of international oil companies into the Mideast will continue, with more projects in Iran and Kuwait on the cards and Saudi Arabia set to remain a big player. "There will also be a big push in Iraq when the time is right," he said.

Earlier, Hussain Sultan, chief executive of Emirates National Oil Co Ltd (Enoc) and conference co-chairman, stressed Opec's resolve to maintain oil prices in the mid-$20s. "The combination of a unified Opec, demand growth and significant under-investment in the industry supports the probability of an extended cycle through 2001," he said.

Oil producers are not physically short of energy but have been unable to raise energy capacity, and blamed the inability to invest in added capacity on low oil prices. Another area of concern is the shortage of human resources — a direct consequence of continued cost-cutting and downsizing, he added.

Sultan stated that while oil producers are enjoying the benefits of extra revenue, "caution and balance" are the key to avoid over-extending the market by pushing prices to levels that might have a detrimental impact on the world economy.