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OPEC holds 2010 oil demand steady

OPEC on Tuesday held its world oil demand growth forecast steady for 2010, noting indications of improvements in the global economy but voicing concerns that oil's price rally remains on shaky ground.
/ Source: The Associated Press

OPEC on Tuesday held its world oil demand growth forecast steady for 2010, noting indications of improvements in the global economy but voicing concerns that oil's price rally remains on shaky ground.

The Organization of the Petroleum Exporting Countries, supplier of about 35 percent of the world's crude, said the world economy was projected to grow by 3.1 percent, up from the bloc's forecast of 2.9 percent the previous month. China and India remain the "bright spots for the year's economic recovery," it said.

"In the coming months, oil market direction will mainly depend on a continuation of the current relatively positive outlook for the global economy, especially in key countries such as the U.S and China," OPEC said in its January Oil Market Report. "Should developments turn out to be less positive than expected, market attention will revert back to weak oil fundamentals."

Given tenaciously high global crude inventories, which remain well above five-year averages, oil's recent rally was built on speculation, not just supply and demand.

"The persisting stock overhang, low seasonal demand and start of refining maintenance point to the need for continued caution over the coming months as market volatility is expected to remain," it said, adding that the "combination of both bullish economic news and the colder weather has increased the financial sector's exposure to energy."

Overall, world oil demand is projected to increase by 800,000 barrels per day to 85.15 million barrels per day, OPEC said. That is steady with its December forecast.

Last week, the Paris-based International Energy Agency, the adviser to all oil consuming nations, also held its demand projection unchanged at 86.3 million barrels a day.

OPEC said much of the recovery in oil demand will take place in the United States, the world's single largest consumer of oil. But it also noted that the pace of the recovery in the U.S. is far from set.

"Economic growth in 2010 will still depend on government support following the massive stimulus that has already been provided by the U.S administration over the course of 2009," OPEC said. "This raises the question of the sustainability of growth if the government lifeline is removed."

The 12-member group of oil producing nations has been struggling to engineer a sustained rebound in the price of oil since it collapsed in mid-2008 from a record high of almost $148 per barrel to the low-$30s just months later.

Crude is the chief export for these countries, bringing in about 90 percent of the revenue for some of the governments and the decline hit them hard at a time when the global financial crisis was hammering world equity markets.

OPEC announced a series of output cuts in the second half of 2008 that targeted lowering their output by 4.2 million barrels per day. The group held its output quotas unchanged during its meeting in Angola in December, ringing out 2009 as a year in which it instituted no production target changes.

Oil is currently hovering slightly above $78 per barrel, a range which OPEC kingpin Saudi Arabia and other group members have argued is fair for both producers and consumers.

But OPEC faces numerous challenges in keeping prices supported at current levels.

Aside from high global inventories of crude and global economic uncertainties that could affect demand, the group is grappling with lackluster member compliance with output targets.

Continuing a downward trend, OPEC said output by the 11-members bound by quotas increased 68,000 barrels per day in December compared to the previous month.

December production, excluding Iraq, was estimated at 26.69 million barrels per day, or roughly 1.6 million barrels per day above the bloc's target output.

A number of OPEC ministers expressed disappointment during the Angola meeting with compliance levels at slightly below 60 percent.

OPEC is scheduled to meet next in Vienna in March 17.