Interest in the narrowing contango and its possible causes have been growing in the past few weeks, and the IEA on Friday looked at the subject – and the question of whether tighter prompt markets or “less alarmist views on the future” are responsible.

The answer they say, is likely both – going on to point to several fundamentals that could reasonably be driving both ends of the market – of which small signs of an OECD demand floor was just one.

From the report:

The IEA’s monthly oil report out on Friday makes for familiar reading: non-OECD demand slightly stronger, partly offset by OECD demand being slightly weaker – resulting in a small upgrade in overall demand forecasts:

Global oil demand has been revised up by 70 kb/d for both 2009 and 2010 on higher‐than‐expected non‐OECD data, which largely offset persistently weak OECD readings. Demand is now estimated at 85.0 mb/d in 2009 (‐1.4% or ‐1.2 mb/d year‐on‐year), and is expected to rise to 86.6 mb/d in 2010 (+1.8% or +1.6 mb/d versus 2009).

That’s a downward revision of 120,000 barrels per day in 2010 for OECD countries, which are expected to see their fifth yearly decline in 2010.

However there were some other interesting comments on the OECD. There are signs of ‘a nascent petrochemical-led economic recovery’, the IEA writes, due to strong naphtha deliveries. But the signs are mixed, and some evidence of demand destruction was cited.