IEA Sees Oil Demand Rising in 2010 After 2-Year Drop

The International Energy Agency predicts global oil demand will rebound next year, recovering from the fastest drop since the early 1980s as the world economy emerges from its slump.
Worldwide consumption of crude oil will increase by 1.4 million barrels a day, or 1.7 percent, to 85.2 million barrels a day next year, the adviser said in its first monthly report to include a forecast for 2010. The growth will be concentrated in emerging economies outside the Organization for Economic Cooperation and Development.
Oil prices have advanced 34 percent this year on optimism that government stimulus will lift countries out of the worst global recession in six decades. Crude traded at less than $60 a barrel today in New York, a day before the July 11 anniversary when prices reached a record $147.27 last year.
“We expect demand to rebound based on the forecasts of major institutions,” David Fyfe, head of the IEA’s oil industry and markets division, said in an interview from Paris. “There’s still a strong note of caution. Demand data coming in for 2009 is still weak on a trend basis.”
The International Monetary Fund, in a forecast before the IEA prepared its outlook, estimated that the world economy will expand by 2.5 percent in 2010. The IEA said its 2010 view may remain “broadly unchanged” once it includes the revised IMF forecast, whose changes mainly reflected developed economies, where crude use is less intense.
‘Higher GDP Scenario’
The projection for 2010 is about 850,000 barrels day higher than the “higher GDP scenario” included in the agency’s Medium-Term Oil Market Report published on June 29. The Medium- Term report was prepared over a longer period than the monthly bulletin, forecasting through to 2014.
The agency revised up its assessments of 2008 and 2009 global demand by 400,000 barrels a day each, to 86.2 million barrels a day and 83.8 million a day, respectively.
Daily supplies from outside the Organization of Petroleum Exporting Countries will increase by 410,000 barrels to 51.2 million barrels next year as a result of projects in Azerbaijan, Brazil and Canada, as well as growing use of biofuels, the agency said. Non-OPEC nations account for about 60 percent of world oil output.
The anticipated supply increase may be canceled if the recession persists, the agency said.
‘Anemic Demand’
“A weaker economic prognosis for 2010 implies more anemic demand and cash-flow expectations, and could further erode upstream capex, knocking 300,000 to 400,000 barrels a day off non-OPEC supply from the levels shown here,” the report said.
The adviser also changed its forecast for non-OPEC production this year, predicting it will increase by 190,000 barrels a day to 50.8 million day. The IEA forecast a decline for the year in its last monthly report. Non-OPEC supply was revised higher because of stronger-than-expected Russian output.
“There is arguably more potential upside to Russian oil production than in many other countries currently experiencing a plateauing of output,” the report said.
Daily supplies from Russia this year will expand by 30,000 barrels to 10.3 million a day, according to the agency, which had previously forecast a decline. The IEA raised its estimates for Russia by 110,000 barrels a day this year and 260,000 barrels a day in 2010. The revisions follow government tax incentives for developing new fields.
Thaw in Russia
There “might be a thawing in the attitude towards international oil companies gaining access in Russia,” the report said. The recession is driving Russian producers to seek out foreign investment to help offset declining output rates.
“Much of the increase in demand may be gobbled up by rising non-OPEC output and OPEC natural gas-to-liquid, so there may not be much room next year for a huge rise in OPEC output,” Fyfe added. Natural gas liquids, or NGLS, are liquids separated from natural gas such as propane.
OPEC boosted production for a second month in June, straying further from its official quotas. The 11 members bound by targets raised output to 26.2 million barrels a day.
That lowers the organization’s compliance rate with record supply cuts announced last year to 68 percent, compared with an estimate of 74 percent in last month’s report. Those 11 members have an agreed ceiling of 24.845 million barrels a day.
All 12 OPEC nations, including Iraq, will need to provide 27.1 million barrels a day this year and 27.4 million day next year, the IEA said.