IEA Raises Oil Outlook for First Time in 10 Months

Thursday June 11, 2009

The International Energy Agency raised its global oil-demand forecast for the first time in 10 months on signs that the economic slowdown is abating.

The adviser to 28 nations increased its global oil demand estimate for this year by 120,000 barrels a day to 83.3 million barrels a day, driven by consumption in U.S. and China. Consumption worldwide will contract by 2.9 percent from last year, the biggest drop since 1981, the agency said in its monthly report today.

“These revisions do not necessarily imply the beginnings of a global economic recovery, and may only signal the bottoming out of the recession,” the Paris-based agency said. “It’s a fairly modest uptick. Underlying demand levels remain weak.”

Oil prices have climbed 61 percent this year. They traded above $72 a barrel in New York today for the first time in seven months on growing optimism about an economic recovery and as a weaker dollar drives investors toward commodities. Futures in New York rebounded to a seven-month high of $72.30 after the release of the report from as low as $71.32 earlier in the day.

Confidence in the world economy rose for a third month as U.S. job losses slowed and global production improved, a Bloomberg survey of users showed yesterday. A U.S. Labor Department report on June 5 showed the country lost the fewest number of jobs since September last month.

Tighter Fundamentals

Rallying crude prices have been driven by both tighter supply-demand fundamentals and “short-term flows” of speculative capital, David Fyfe, head of the IEA’s oil industry and markets division, said in a phone interview from Paris.

Analysts expect prices to average $61 a barrel in the fourth quarter of this year, according to the median of forecasts compiled by Bloomberg. Goldman Sachs Group Inc. said this month it expects oil to reach $85 by the end of the year,

The outlook for 2009 consumption in the most industrialized countries, the Organization for Economic Cooperation and Development, was raised “marginally” to 45.2 million barrels a day. Inventories of crude and refined products in these nations amounted to 62 days of demand as of the end of April.

The forecast change in demand was countered by expectations for higher output from outside the Organization of Petroleum Exporting Countries.

Courtesy: Bloomberg