More Bullishness for Oil Heading into 2010

As we move deeper into the second half of 2009, oil demand and price forecasters appear to be getting more bullish about next year.

Oil industry consultant PIRA is the latest to weigh in with its 2010 World Oil Market Forecast.

PIRA sees global oil demand rising 1.5 million barrels a day (to 85 million barrels daily) next year as the world’s major economies improve at the same time. The International Monetary Fund is now predicting 2.5 percent year-over-year growth in global gross domestic product.

PIRA also predicts that non-OPEC production will fall by 400,000 barrels per day.

The combination of greater demand and tighter production capacity will drive up the price of West Texas Intermediate crude to an average of $80 a barrel next year, up nearly a third from current prices, PIRA says.

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PIRA expects about 60 percent of the demand increase to come from Asia and the Middle East, with North America, Western Europe and Japan accounting for less than 20 percent of the growth.

That may seem like a small increase, but it would represent the first demand increase in the developed world since 2005.

PIRA’s outlook is rosier than that of the U.S. Energy Information Agency, which expects oil to average just over $72 per barrel, up roughly 20 percent from where we are now, and demand to rise by 900,000 barrels daily.

Paris-based International Energy Agency is forecasting a demand increase of 1.4 million barrels per day, with the bulk of that new demand coming in emerging markets. The IEA did not offer a price prediction.

OPEC has lower demand expectations for 2010—earlier this week, it said that it sees a 500,000-barrel-per-day increase in consumption.

It’s not unusual that OPEC’s outlook is more conservative, but it is a bit surprising that OPEC’s latest forecast is 300,000 barrels lower that its forecast just last week.

Part of the rationale behind OPEC’s cautious outlook is based on its lack of confidence in a U.S. economic turnaround, saying rising unemployment and stretched balance sheets will continue to cast a shadow over any momentum toward recovery.

Comments

[Ferdinand E...:]

I am prepared to believe in an economic 'turnaround', but not so fast as to make those demand forecasts come true. But I hope that they are correct because if they are it means that the economics train is back on the tracks.

Jul 18 09:14 AM

[ETF STER:]

Current production is 1-2 million barrels per day more than demand. It will take longer than you think to work off the extra crude. All of the "green shoots are turning out to be weeds.

The current rise in crude is the result of speculation that the world economy will turn around next year.

I think you are overly optimistic in your prediction.

Jul 18 11:48 AM

[john boy:]

Excellent article. Well documented. $80.00 does not sound out of line for next year, hopefully it is on the low side. I say hopefully because I own a few and gas and oil wells.

Jul 18 03:23 PM

[tresspass:]

one forgets that as one should not short a boring market ( which this one clearly is not ), one should not bet on the relative calm in the middle east continuing.

a friend of mine returning from business in Lebanon, then Jordan has been told and just plain senses, there is a calm , now, before a storm.
3 days of a closed straits of Hormuz and further degradation of Nigerian supplies is the sunami---not OPEC cuts , which, by the way always kick in again and deeper below $60.

No, I believe largely in the above article, primarily for the same reasons. I have no horses in this race any longer but plan to in August.

Jul 19 09:42 AM

[rbblum:]

As beneficial as it may be to discuss the big picture regarding oil
availability vs global demand, it may be just as significant in maintaining a discussion regarding the underlying currents of the proven oil fields currently available to the US vs future availability to the US at reasonable costs . . . expecially when observing continuing, negative trends which include (but not limited to)
Venezuela redirecting their oil contracts away from the US, to China; the dwindling life of Mexico's Cantrell Fields and; the anti-energy bias of the US initiated by the 'environmentalist/global warming' clique.

Jul 20 07:09 AM