IEA Joins OPEC in Higher Oil Demand Forecast

Another day, another forecast for crude oil demand. Yesterday, OPEC issued its monthly oil report forecasting demand of 85.59 million b/d for the full 2010 calendar year. The cartel also forecast that demand growth would hit 1.1 million b/d in 2010.

Today, the International Energy Agency, IEA, forecasted daily global demand at 86.94 million b/d, a total of 1.35 million b/d higher than OPEC’s forecast. Calling the 2010 estimate the “last hurrah for demand in North America,” the IEA figures that demand growth in 2011 will be 1.21 million b/d, down 60,000 b/d from its previous forecast. Total global demand, according to the IEA, will reach 88.16 million b/d in 2016. OPEC predicts 2011 total global demand of 86.64 million b/d, some 300,000 b/d less than the IEA forecast for 2010.

To add another set of numbers, just to make your head spin even faster, the US Energy Information Administration, EIA, is projecting crude oil consumption to rise by 1.7 million b/d in 2010, and consumption to rise by 1.4 million b/d in 2011. The EIA sees total global consumption of 86.06 million b/d in 2010 rising to 87.44 million b/d in 2011, up about 1.4%.

The central predictive element in all these estimates is the state of the global economy. All are expecting the global economy to continue its slow growth through 2011. As the economy grows, the thinking goes, so does demand for energy, of which crude oil is a big player.

Yet, the economic predictions for 2011 are really not so hot. The US economy is expected to grow around 2.2% in 2010 and by less than 2% in 2011 as high levels of unemployment are not likely to improve much until the last half of the year.

As usual, growth in Asia is what will prop up the demand and the price of oil in 2011. The economies of China and India will continue to expand rapidly, and demand for energy will follow right along. The US EIA also sees growth in Brazil and the Middle East offering demand and price support for crude.

Supply of physical crude should keep up with demand growth, but prices will rise moderately as OPEC raises its production, either officially or unofficially. OPEC’s surplus capacity is estimated at about 5 million b/d, far about the 1.5 million b/d surplus of 2008 and better than the 4.3 million b/d of 2009. Increased production in Iraq should also help keep prices from going to the moon.

Putting the three estimates together, the outlook is for demand growth of 1.2-1.4 million b/d, and total demand ranges from about 86.5 million b/d to 87.4 million b/d. All things considered, that’s a pretty compact range.

Paul Ausick