IEA Sees Faster Oil Recovery

The forecast from the IEA, a group of energy consuming nations whose view serves as a benchmark for the oil industry, marks a change in outlook after months of pessimism about demand. The group, which revised demand forecasts upwards for in 2009 and next by 500,000 bpd, said consumption was now expected to rise by 1.3 million bpd in 2010, after a drop of 1.9 million bpd in 2009.  “Baseline oil demand in the US, China and other Asia appears to be running stronger than preliminary estimates suggested,” the IEA said. “There is growing evidence that the global economy may be finally stabilising, with industrial de-stocking coming to an end, coupled with the effects of large-scale government intervention.” Oil markets reacted positively to the forecast. West Texas intermediate crude rose US$0.72 to US$72.03 a barrel. The IEA cautioned that its forecast was clouded by unclear data from China and the possibility of a “double-dip” recession that could push oil consumption down again later 2009. At a meeting in Vienna which finished early on Thursday morning, OPEC opted to maintain current restrictions on its members’ crude production. Officials said a deeper cut would harm the economic recovery. “While there are signs that economic recovery is under way, there remains great concern about the magnitude and pace of this recovery,” OPEC said in its communique. “There has been some easing of the overhang in crude oil stocks but market fundamentals remain weak, refinery utilisation rates are low and product inventories have risen considerably.” OPEC predicts demand will increase by 500,000 bpd in 2010, after a drop of 1.6 million bpd in 2009, said Abdulla el Badri, the OPEC secretary general. El Badri said the group was not seeking a particular price range for oil and was wary of the potential for higher prices to prolong the economic crisis, which he compared with the Great Depression. “We don’t want to take action that will jeopardise the recovery,” he said. “It is like someone who walks on a very narrow line. The road is not that wide. You have to walk very, very carefully at this time.” But he added that any price below US$75 a barrel would discourage OPEC members from investing in new production capacity for the future, while oil as high as US$80 would not hurt the market. OPEC members’ compliance with the record 4.2 million bpd of output cuts pledged in 2008 had slipped to between 68 and 70%, from about 80% in March, Mr el Badri said. “I know no country can comply 100%,” he said. “I think from 80% to 85% is realistic.” He suggested better compliance and an increase in global oil demand would reduce brimming oil stockpiles that threatened prices. The IEA estimated OPEC’s compliance rate was 66%, led by overproduction in Iran, Angola and Venezuela. In a statement, the agency called OPEC’s move to leave output unchanged “a sensible decision”. The revisions to the IEA’s demand forecast on Thursday were driven by better news from North America and China. North American average demand was revised upwards by 270,000 bpd for 2009-2010. Under the new forecast, the region will see oil use decline by 2.2 million bpd in 2009 and register slight growth in 2010.- The National