IEA revises oil demand forecast upwards

The International Energy Agency has revised its crude oil demand forecasts for 2009 and 2010, based almost entirely on growth in emerging markets, particularly in Asia.

However the agency said it remained bearish on signs of a world economic recovery.

In its monthly oil report, the IEA said 2009 demand would average 83.9m barrels per day, 190,000 barrels higher than it forecast last month, representing a 2.7 per cent decrease on 2008 demand levels.

Demand for 2010 was also revised upwards, by just 70,000 barrels per day – but the bigger increase in the 2009 forecast means next year’s increase will be smaller, on a year-on-year basis, than previously estimated.

A rebound in Chinese demand, the agency said, underpinned both revisions. Some of this was due to China’s rapid progress in building its strategic petroleum storage, which the IEA said could augment demand later this year. For OECD countries, signs of a demand rebound were slight, although there was a small increase in demand expected from Pacific OECD countries this year.

The IEA struck a pessimistic note on a recovery in the global economy as the key indicator for global demand,  observing that industrial production levels remained poor, and this was reflected in the demand for middle distillates such as gasoil. Talk of the global recession ending might be premature, the report suggested:

However, despite the amelioration of some economic indicators in a few countries, the most that can be said  is  that  the  global  economy  may  be  stabilising  –  but  even  if  this  is  confirmed,  it  remains far from evident that growth will resume strongly before the end of the year.  For example, a look at the latest industrial China and India is industrial production growth positive (and indeed quite strong in the former country). Elsewhere, by contrast,  industrial  production  growth  remains  firmly  in  negative  territory,  even  though the  pace  of  decline  has  somewhat  slowed,  notably  in  Japan  and  Russia.    More  worryingly,  industrial production has seemingly not reached bottom in the US.

The IEA also pointed to uncertainty over what would happen “if and when” the fiscal and monetary stimulus measures currently in place around the world were withdrawn.

Habitually accused of overstating demand growth, we are now among the bears for 2009 demand (-2.3mb/d versus 2008). Time will tell although, notably, consensus among other analysts for average demand change in 2009 shifted from around -1.5mb/d in April to closer to -2.0mb/d most recently. On the other hand, we do see a rebound in demand in non-OECD countries prompting a demand rebound in 2010.

On Tuesday the US Department of Energy revised its 2009 demand forecasts downwards – but the declines it forecast have been much less steep than the IEA’s. The DoE’s Energy Information Administration said global oil demand would be 1.71m barrels per day lower, at 83.76m. Last month, it forecast demand would fall 1.56m barrels per day this year. The EIA did however forecast the fourth quarter of 2009 would see higher demand than the same quarter a year earlier – the first such year-on-year increase in five quarters.

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