Oil demand is firming but the global market is still weak, driven by doubts over how a groggy recovery from the global crisis will affect energy consumption next year, the International Energy Agency said yesterday.
Describing the "bulls versus bears" battle in the oil market, it insisted: "There is considerable uncertainty as to the world's short-term economic outlook."
Pointing to an oil price of about $75 a barrel next year, from about $71 now, the International Energy Agency warned that immediate oil demand was "in the doldrums".
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 next year, even after the expected "rebound" "will still remain below 2008 levels," said the IEA's monthly report.
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 strengthening 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 next year, an annual increase of 1.4 mbd, marking a turnaround to an annual increase of 1.7 per cent.
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, even though it was running above target quota levels. In addition, there was "further evidence of fuel substitution and efficiency improvements," the IEA said.
It 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.
"The crucial role of China in shaping future oil markets," was a fundamental factor.
The IEA said that although it had revised up its outlook, "prompt oil demand remains in the doldrums."
It explained: "Global demand was still down by 1.6 per cent year-on-year in July, versus minus 2.3 per cent as previously estimated, and by 1.7 per cent in August.
"More significantly, demand among the world's 12 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.
"Gasoil (diesel) demand, in particular, remains very weak, trailing by about four per cent below last year's levels on a quarterly basis."
The contraction for oil demand overall this year "will be significant" and "despite the expected 2010 rebound, oil demand next year will still remain below last year's levels."
In this light, the IEA said, the absolute level of oil demand, rather than relative change, "is more instructive when outlining market fundamentals."