The IEA has revised upward its oil demand forecasts for 2009 and 2010, and by a decent amount this time – but the agency has kept a very cautious tone about the general outlook.
Worldwide demand, the IEA says, will now average 84.4m barrels per day in 2009, and 85.7m bpd in 2010. Both figures are 500,000 barrels higher than the estimates published last month.
Much of this change is due to North America and China – but the picture in both these areas, the agency says, is rather murky.
In North America, demand levels for June were revised upwards by a “hefty” 820,000 barrels per day – mostly because of gasoline.
The IEA notes:
Auspiciously, this is the first time since last February that US gasoline is revised up rather than down, although it should be noted that recent US weekly‐to‐monthly revisions have been somewhat unpredictable in terms of direction as well as to the product categories that have been affected, thus complicating attempts at pre‐emptive adjustments.
Meanwhile Chinese demand, which has risen substantially for the fourth month in a row, also presents some opacity problems, namely stockpiling, the lack of inventory data, and government spending.
Much of the increase in Chinese demand, the IEA says, comes from government stimulus spending via ‘other products’, such as bitumen, lubricants and coke for building new infrastructure such as roads, railways and airports:
Assuming that the stimuli are gradually withdrawn, that demand will tend to follow patterns observed in previous years of strong economic growth and that part of the recent growth is related to inventory builds, we forecast that ‘other products’ demand will gently decline in 2H09 and expand moderately in 2010. Yet this outlook could well prove wrong if government spending remains unabated or if stocks for this product category happen to be low or even negligible.
On the other hand, several factors could affect stocking of products, which would depress apparent demand:
Indeed, storage could reach a capacity limit. Oil prices could fall. Alternatively, if international prices were to rise further, the government could be tempted to suspend the price mechanism (the NDRC has recently declared that even though it will continue to adhere to the principles of the price mechanism, it will only adjust domestic prices when necessary).
Balancing up all these contradictory factors, the IEA has revised Chinese demand up by 140,000 bpd for both 2009 and 2010. But given that this is more than a quarter of the total upward revisions this month – and that the IEA warns that China’s demand outlook could remain “prone to substantial revisions” – there’s no knowing how that might turn out next month, or the month after that…