When Oil Forecasts Conflict: IEA vs. EIA

Reading around various projections of future oil demand is one way to get an opinion for which direction oil prices are heading.  The problem is that you better have some faith in those who make forecasts, because the result is that sometimes the projections greatly conflict within the same 24-hour period.  The International Energy Agency lowered its 2010 world oil demand forecast on Wednesday.  Yesterday, the Energy Information Administration (U.S.) said that world oil demand will be stronger than expected.  This is hardly different from when a big company reports earnings, and then you see one analyst say “BUY” and a different analyst say “SELL” off the same news.

• The Paris-based IEA expects total global crude demand at roughly 86.38 million barrels per day.  That is a 220,000 barrel downward revision from a month ago, although that is up 1.9% or 1.6 million barrels from 2009.
• The EIA projection was that world oil demand will be led by China and would rise 1.82% in 2010 to 85.55 million barrels per day.

The IEA (E.U.) may be keying more off of the pre-bailout package in the Eurozone as this is the first substantial cut in a year, and it did note that the economy faces risks from Greece and others.  It is also going back to 2008 revisions.  It seems that the EIA (U.S.) may be discounting the woes of Europe entirely after the package.  There is another angle, pointed out by the WSJ:  “The IEA, which acts as an energy watchdog for largely wealthy nations like the U.S., has been on the optimistic side about oil demand compared with other industry forecasters.”

Then there is the notion of TIMING, yesterday versus tomorrow… The EIA (U.S.) lowered Q1 estimates to 85.02 million barrel, a drop of 0.5% or 420,000 barrels.  The forecast is what matters more than the rear-view mirror.  Beyond Q1, the EIA sees demand higher through 2011, with 2011 at 3.6% demand growth on a projected GDP growth of 3.7%.

An interesting tidbit from the IEA (E.U.)… oil inventory parked in ships offshore in tankers was up 25% in April from March to about 81 million barrels.  Most of that blame is Iran rather than hedge funds, as the lower quality crude oil can’t find a home in Iran or in China for refining.

If you are dead set in mind that oil is caught in a trading range of above $70.00 to $85.00, conflicting forecasts and reports like this will only give you that much more conviction in that trading range.  If you have a Goldman Sachs account, you can probably get them to help you create an OTC derivative for that.

JON C. OGG