The International Energy Agency Thursday slightly revised up its 2009 world crude demand forecast for the first time in 10 months in response to gentle signs emerging that an uptick in economic activity is breathing some life back into oil consumption.
In its monthly oil market report, the IEA said it expects global crude demand this year to average 83.3 million barrels a day, representing an upward revision of 120,000 barrels a day from the agency's May report.
The forecast is still fairly grim in the scheme of things, however. Demand this year is expected to tank 2.9%, or 2.5 million barrels a day, according to IEA estimates. Yet the upward revision signals that the sharp deterioration in petrol demand in past months from the worst global recession in nearly 80 years has probably ended.
"It's a fairly modest revision. Some first and second quarter (macroeconomic) data is looking slightly healthier than we expected but it's still very early days," said David Fyfe, editor of the IEA report.
The IEA is a Paris-based energy adviser to large energy consuming nations like the U.S. and Japan. Some analysts have criticized the agency's 2009 oil demand forecasts for being too pessimistic.
The IEA's slightly sunnier take on world oil demand mirrors other recent industry forecasts. More encouraging economic data and some speculative investment have pushed U.S. crude prices to an eight-month peak of around $72 a barrel, double their level at the end of 2008.
Some analysts say the big price rise may not have legs to run further if gasoline demand in the U.S., the world's biggest consumer, fails to show an appreciable rise this summer.
The IEA said it expects U.S. gasoline demand to log positive growth from June onwards for the first time since September 2007 without forecasting how much that increase could be.
Total U.S. oil demand was revised up by a slight 50,000 barrels a day, though consumption there is still expected to drop this year by a hefty 4.8%, or almost 1 million barrels a day, to 18.6 million barrels a day.
Fyfe said much of the upward demand revision, the IEA's first since last August, was driven by a pickup in production of plastics and other petrochemical products in Asia along with a modest rise in oil storage demand in China, the world's second biggest oil consumer.
Chinese oil consumption was revised up by a small 40,000 barrels a day. Total demand there is expected to drop by 0.4% this year to 7.9 million barrels a day versus 2008.
Yet if demand is showing more signs of life so is supply, which could temper the upside in oil prices.
The IEA revised up its non-OPEC supply forecast by almost 200,000 barrels a day on rising output from new Russian fields and incremental production from the U.K.'s North Sea. Non-OPEC crude supply, which slakes 60% of daily consumption globally, is still expected to contract by 100,000 barrels a day to 50.5 million barrels a day in 2009.
The Organization of Petroleum Exporting Countries eased its grip on production again in May for the second month in row as many of the cartel's 11 quota-bound members such as Angola, Iran, and Venezuela leaked more oil into the market.
The cartel's compliance with big output reduction of 4.2 million barrels a day announced in 2008 dropped to 74% last month, down from 76% in April and just over 80% early this year, the IEA said.
OPEC is also producing more natural gas liquids, which are derived from raw natural gas and used in transport fuels and industrial processes.
Yet the OPEC cuts still in place are helping purge excess crude inventory, which is safely above a five-year average level in the U.S. and Europe. Refiners are stepping up activity to process more gasoline and other fuel products and that's also helping thin down inventory.