World demand for oil will end the year at an average of 85.83 million barrels per day (bpd), a year-on-year decline of 700,000 bpd, according to figures from Organisation of Petroleum Exporting Countries (Opec).

This represents a downward revision of 360,000 bpd from last month's estimate, says Kuwait-based Global Investment House's oil bulletin for December.

The decline is largely due to an expected fall in Organization for Economic Co-operation and Development (OECD) oil demand of 1.5 million bpd year on year. The fall in OECD demand in turn is mainly attributed to the United States, the world's largest economy and biggest oil consumer.

The US officially entered recession in December 2007 and so far two million jobs have been lost there this year. In November alone 550,000 jobs disappeared – the steepest loss in more than 30 years.

The global recession is expected to continue for some time and this will lower demand for oil in 2009.

High oil prices and the removal of subsidies in developing countries in the first seven months led to demand destruction, says Global Investment House.

"The credit crunch raised its ugly head in the latter part of the year as bankruptcies and bailouts became a regular feature, precipitating a slowdown in the world economy and hence oil demand, which was reflected in the sharply falling oil prices.

"The financial crisis has spilled over to the European and other major economies as well. OECD Western Europe oil demand is projected to decline by 80,000 bpd year on year to average 15.2 million bpd, while OECD Pacific oil demand is projected to decline by 190,000 bpd to 8.16 million bpd in 2008."

But the fall in demand in OECD countries is being offset by growth in the non-OECD countries – particularly China, the Middle East states and developing countries.

"Demand in China is projected to grow by 420,000 bpd in 2008 to reach eight million bpd on the back of robust economic growth, which is estimated at 7.5 per cent this year, and a possible downward revision in retail prices as the crude price has fallen drastically in the last four months," adds the report.

"Demand in developing countries is expected to grow by 840,000 bpd to average 25 million bpd in 2008."

According to Opec projections oil demand is expected to decline by 66,000 bpd in 2009 year on year. But with the financial crisis affecting financial markets all around the world these projections are vulnerable to further downward revisions.

The organisation says non-Opec supply is expected to average 49.6 million bpd in 2008, a growth of 110,000 bpd over the previous year. This represents a downward estimate of 110,000 bpd from the previous month's estimate.

Oil supplies from the US are projected to increase by around 20,000 bpd to 7.5 million bpd in 2008 compared with 2007 levels. There has been a downward revision of 20,000 bpd from last month's assessments due to the slow recovery of operations that were disrupted by hurricanes.

Supplies from Canada are projected to grow by 90,000 bpd to reach 3.4 million bpd in 2008. Mexico's supplies are expected to decline by 300,000 bpd to average 3.2 million bpd due to a reduction in production at the Cantarell field.

"A major decline of 240,000 bpd is projected in Western Europe, largely due to declines in production of 100,000 bpd in Norway and 150,000 bpd in the United Kingdom," says the report adding: "The major contributors to non-Opec supply growth are the developing countries. Oil supplies from these countries are projected to increase by 300,000 bpd in 2008 to 11.26 million bpd from 2007 levels. Brazil is the main contributor of growth in this category."

Supplies from the former Soviet Union region are projected to increase by 80,000 bpd in 2008 while supplies from China are expected to increase by 90,000 bpd.

Opec oil production averaged 31.01 million bpd in November 2008, a decline of 740,000 bpd from October 2008 levels. Opec production excluding Iraq was 28.7 million bpd.

The decline was due to a move towards implementing the output cut of 1.5 million bpd agreed by Opec in in October 2008. Angola was the only country registering an increase – 33,200 bpd – in November despite being party to the Opec output cut.

The sharp decline in crude prices, which have fallen by 69.9 per cent since reaching an all-time high of $145.16 on July 14 prompted Opec to cut its output by a record 2.2 million bpd at last week's meeting in Algeria.

This significant cut is intended to stabilise oil prices and clear a huge backlog of oil inventory. The cut was slightly larger than the 2 million bpd expected by the market.

The move follows concerns voiced in many quarters regarding possible cancellations of investment in the oil industry and order delays in view of the continued fall in oil prices.

Total US commercial stocks stood at 1,014 million barrels at the end of November 2008 compared with 998.2 million at the end of October. Increases in refinery runs and slack demand increased total oil stocks by 15.9 million barrels in last month to their highest levels since September 2007.

The rise was due mainly to an increase in crude oil stocks of 8.6 million barrels to 320.5 million barrels in November 2008 from October 2008 levels and an increase in gasoline stocks of 2.8 million barrels to 198.9 million barrels. The increase in stocks is largely due to a slowdown in demand.

Total oil stocks in Western Europe witnessed an increase of 3.3 million barrels last month to 1.11 billion barrels from October 2008 levels due to a 2.3 million barrel increase in crude stocks to 476.6 million barrels. Stocks of middle distillates increased by 1.2 million barrels while fuel oil stocks declined by 500,000 barrels in November to end at 357 million and 112.3 million barrels respectively.