Low demand for oil affects Arab capacity expansion plans

Arab oil producers are likely to slash crude supplies by nearly 2.62 million barrels per day in the first quarter of 2009 as a result of low global demand and this would stifle their capacity expansion plans, according to an official report.

Lower production will also ally with a sharp fall in crude prices to slash their income by around $4.16 billion (Dh15.2bn) a month in the first three months of this year, an average $138.7 million a day in November crude prices, said the report by the Organisation of Arab Petroleum Exporting Countries.

In a study obtained by Emirates Business yesterday, the Kuwaiti-based Oapec said slumping world oil demand and the global credit tightness have already smothered return on oil investments and discouraged many Arab countries and other oil producers from pursuing planned projects in this sector.

“The decline in world oil demand because of the global financial distress has prompted Arab producers to slash output and this has depressed their share of the world’s crude supplies,” the 11-nation organisation said.

“This is forcing them to divert their investments in capacity expansion projects to maintenance of present capacity and preservation of existing spare capacity