LONDON – The worsening credit crisis and economic outlook is likely to hit oil demand, weighing on prices and increasing the chance that consumption growth will slow down or even stop next year.

Demand in the United States has slumped, consumption in Japan and Europe has weakened and there are questions over China and other emerging economies. That might, some say, result in no growth in oil demand in 2009.

“China's economic growth is weakening because of concerns over the U.S. recession and the slow growth in the Euro zone,” said Victor Shum of Purvin & Gertz in Singapore.

“The Chinese economy is not completely decoupled from the Western economies.”

Oil prices fell below $90 a barrel on Monday to an eight-month low, pressured by expectations the financial turmoil will bring a sharp fall in demand. Prices have slid from a record high of $147.27 reached in July.

The International Energy Agency (IEA), an adviser to 28 industrialised countries whose forecasts are an industry benchmark, now expects world demand to rise by 890,000 barrels per day, about 1 percent, in 2009.

Others say consumption will be much weaker. Banks such as Merrill Lynch in the past week have cut their forecasts for oil demand next year, citing the U.S. slowdown and a weakening outlook in some emerging economies.

Merrill in an Oct. 1 report lowered its 2009 world demand growth forecast to 400,000 bpd. Societe Generale (Socgen) in a report received on Oct. 3 said it had cut its estimate for next year by 100,000 bpd to 800,000 bpd.

“U.S. demand is imploding,” said Merrill analysts, including Francisco Blanch, in the report.

“In Asia, Indian and Chinese oil demand is still expanding, but at substantially lower rates.”

ZERO GLOBAL GROWTH?

Demand in the United States, the world's largest consumer of oil, has proved slower than expected in 2008 as people drive less, and it is predicted to remain weak next year.

Government data recently showed that U.S. oil demand in July fell to the lowest level for the month in 11 years, with consumption 736,000 bpd less than previously estimated.

“We've seen U.S. consumption declining for the last year and we don't expect that to turn around in the next year,” said Tancred Lidderdale, senior economist at the U.S. government's Energy Information Administration (EIA).

“Prices will remain high and the prospects for (a) continuing weak economy is going to put downward pressure on consumption.”

Attention will turn in coming days to whether the EIA, IEA and other forecasters will cut their demand estimates.

The EIA is scheduled to issue its latest monthly oil forecasts on Tuesday. The IEA follows on Friday and the Organization of the Petroleum Exporting Countries on Oct. 15.

While analysts such as Merrill and SocGen expect less demand growth than the IEA, they still forecast an increase. Some in the oil market say there may be no growth at all.

“It seems inevitable that demand growth in China and India, the main driving factor in the run-up in prices up until July, will decrease as the financial crisis spreads throughout the world,” oil brokers PVM said.

“It could easily result in a minimal or zero world demand growth next year.”

China's rapid economic expansion has helped boost crude oil prices from below $20 at the start of 2002. Other analysts predict the pattern of emerging market growth will last for a while yet.

“We continue to expect oil markets to remain tight as global oil consumption, which is consumption in the emerging economies of China, India and the oil-producing countries in the Middle East, continues to grow,” the EIA's Lidderdale said.

(Reporting by Felicia Loo in Singapore, Alex Lawler in London and Rebekah Kebede in New York; Editing by Anthony Barker)