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Due to the recent Hurricane Sandy in the United States, slow economic growth in China and European economic headwinds, the International Energy Agency has cut its global oil production demand forecast. OPEC and the United States Energy Information Administration have already cut down the future oil demand forecast due to the prediction of slow economic growth going forward. In our opinion, the gloomy macroeconomic environment, structural transformation towards natural gas and the emerging alternative renewable forms of energy are going to be the key factors responsible for the decline in oil demand.

The International Energy Agency has cut down global oil demand forecast to 90.1 million barrels per day for the fourth quarter of 2012. The reduction of 290 thousand barrels per day is primarily because of the adverse impact of Hurricane Sandy in the United States and deteriorating economic conditions in Europe. The agency has also cut its 2013 production forecast by 100,000 barrels per day from its October forecast. According to the report, U.S oil demand decreased by 230,000 barrels per day in the month of October due to the recent devastation by Hurricane Sandy. In our opinion, oil companies are going to suffer greatly due to the increasing inventory levels that will reduce their drilling activities in the coming quarters. We have to now see how quickly the U.S government handles the situation and restores prior growth levels.

The impact of this cut in forecast has been seen in the decreasing Brent crude oil prices. After this news, Brent crude oil price fell to $107.81 from Tuesday's price of $108.14. We believe that if European economic problems sustain going forward, prices will show a further decline.

Brent Crude oil price chart:

Source: Forexpros

WTI's crude oil price has decreased by 26 percent over the course of last 9 months, as shown in the graph below. We see WTI crude oil price falling further, after looking at the uncertainties attached to it. We are not sure about the prospects of oil in the U.S market as Obama is a staunch believer in the promotion of alternative renewable forms of energy in the country. Moreover, the failure of the economic stimulus is consistently weakening economic growth in the country and the fiscal cliff will further enhance problems for the oil sector. Furthermore, the U.S government promised to expedite the structural shift from oil to natural gas. In this way, analysts see natural gas overtaking the demand for oil and exerting a downward pressure on oil prices.

WTI Crude oil price chart:

Source: Forexpros

EIA, in October, cut its oil consumption growth by 450,000 barrels per day for this year. The total oil demand estimate for 2013 has decreased slightly from 90.095 million barrels a day to 90.01 barrels a day. Moreover, OPEC has also cut global oil demand by 100,000 barrels per day for its 2012 demand forecast. These cuts in global oil demand in the coming period are being witnessed due to expectations of slow economic growth going forward. The rising tensions in the Middle East region are also a matter of concern for energy investors.

Investors who want to play the downside in oil, they can sell U.S oil ETF (NYSEARCA:USO).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The article has been written by Qineqt's Energy Analyst. Qineqt is not receiving compensation for it (other than from Seeking Alpha). Qineqt has no business relationship with any company whose stock is mentioned in this article.

Source: Expect Storms Ahead; International Energy Agency Predicts Low Oil Demand For Q4