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high uncertainty over economic recovery is steadying prices as bulls
and bears judge opposing trends, the IEA said on Friday. Demand
should grow at the end of this year and in 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. In market talk, a 'bull' is one who charges ahead in a
belief that prices will rise, and a ' bear' is one who backs off,
believing they will be weak. Pointing to an oil price of about 75
dollars a barrel next year, from about 71 dollars now, the
International Energy Agency 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 this
year by a moderate amount of 200,000 barrels per day and for next
year by 350,000 barrels per day. 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 barrels per day
this year, meaning annual contraction of 1.7 million barrels per day,
equivalent to a fall of 1.9 per cent from consumption last year.
Demand was expected to rise to 86.1 million barrels per day in 2010,
an annual increase of 1.4 mbd, marking a turnaround to an annual
increase of 1.7 per cent. But, on the other side of the
demand-supply scales, global oil supply in September rose by 310,000
barrels per day to 84.9 mbd, because output from non-OPEC countries
rose while production from OPEC countries remained constrained.
The IEA said supplies from the Organisation of Petroleum Exporting
Countries (OPEC) rose by 120,000 bpd to 28.93 mbd in September.
Excluding Iraq output, production from 11 OPEC members rose by 170,000
bpd to 26.42 mbd. But this was 1.58 mbd above OPEC's output target.
The IEA, pointing to quota-breaching by OPEC members, said that
overall they were now respecting quotas to the extent of 62 per cent
from 66 per cent in August. This meant that OPEC's spare capacity
was now 5.45 mbd. This, together with 'sluggish' demand, had tempered
the effects of tension over Iran's nuclear nuclear programme. Even
excluding Iranian production which was 3. 78 mbd in September, OPEC
had spare capacity of 5.23 mbd. On the global front, the IEA
warned that 'given continuing uncertainties about the path of
economic recovery' there was a downward risk which could bite deeply
into the latest demand estimates, cutting them by 100,000 barrels per
day in the second half of this year and 600,000 bpd next year. It
added that 'the crucial role of China in shaping future oil markets,'
was a fundamental factor. 'More significantly, demand among the
world's twelve largest oil consumers which collectively account for
about 70 per cent of the world total, is still contracting by two per
cent on a yearly basis; the modest demand surge in June appears to
have been short lived.'
