VIENNA // Global consumption of oil will recover faster than previously expected, the International Energy Agency (IEA) said on Thursday, just hours after OPEC decided to keep its output curbs unchanged. 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 this year and next by 500,000 barrels per day (bpd), said consumption was now expected to rise by 1.3 million bpd next year, after a drop of 1.9 million bpd this year. "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 $0.72 to $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 this year. 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 next year, after a drop of 1.6 million bpd this year, said Abdulla el Badri, the OPEC secretary general.
Mr 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 $75 a barrel would discourage OPEC members from investing in new production capacity for the future, while oil as high as $80 would not hurt the market. OPEC members' compliance with the record 4.2 million bpd of output cuts pledged last year had slipped to between 68 and 70 per cent, from about 80 per cent in March, Mr el Badri said. "I know no country can comply 100 per cent," he said. "I think from 80 to 85 per cent 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 per cent, led by overproduction in Iran, Angola and Venezuela. In a statement to Reuters, 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 this year and next. Under the new forecast, the region will see oil use decline by 2.2 million bpd this year and register slight growth next year. China was the other driver of the revision upwards, as oil companies increased their storage of petrol and diesel last month before a government mandated price increase at the start of this month.
Oil use in the country is now expected to rise by 4.3 per cent this year. But the IEA cautioned that stockpiling could have distorted projections. cstanton@thenational.ae tcarlisle@thenational.ae
