Risk Looms over Rallying Oil Market: IEA

Oil demand is rising from its knockdown in the global crisis, but high uncertainty over economic recovery is steadying prices as bulls and bears judge opposing trends, the International Energy Agency (IEA) said. Demand should grow at the end of 2009 and 2010 as the global economy rises after the crisis, but there is a wide range of risk in how the groggy oil market will recover and the oil price is unlikely to rise much. The IEA insisted in its monthly report: "There is considerable uncertainty as to the world's short-term economic outlook." In a "bulls versus bears" battle, analysts and traders were sparring over how to interpret the flow of information about recovery of the global economy and forces at work in the depressed oil market. Pointing to an oil price of about US$75 a barrel in 2010, from about US$71 now, the IEA warned that immediate oil demand was "in the doldrums". On futures prices, the report said that as the recovery from the global economic crisis unfolds, oil traders have increasingly looked to financial markets for signs of 'green shoots' in the broader economy. But recently the link between oil prices and broader financial markets "has become more tenuous as weak supply and demand fundamentals appear to be exerting more pressure to the downside." However, the rate at which demand was shrinking was "clearly falling" and demand in the fourth quarter would probably show an increase over 12 months. Despite the turnaround from depressed levels, oil demand in 2010, even after the expected "rebound" will "still remain below 2008 levels," the report said. The agency revised upwards its estimate for global oil demand in 2008 by a moderate amount of 200,000 bpd and for 2010 by 350,000 bpd. The upgrading reflected revised growth forecasts in a recent report by the International Monetary Fund and also stronger data from Asia and the Americas. The IEA now expects global oil demand to average 84.6 million bpd in 2009, meaning annual contraction of 1.7 million bpd, equivalent to a fall of 1.9% from consumption in 2008. Demand was expected to rise to 86.1m bpd in 2010, an annual increase of 1.4m bpd, marking a turnaround to an annual increase of 1.7%. But, on the other side of the demand-supply scales, global oil supply last month rose by 310,000 bpd to 84.9m bpd, because output from non-Opec countries rose while production from Opec countries remained constrained. The IEA said supplies from the Opec rose by 120,000 bpd to 28.93 million bpd in September 2009. Excluding Iraq output, production from 11 Opec members rose by 170,000 bpd to 26.42 million bpd. But this was 1.58 million bpd above Opec's output target. - Gulf Daily