Rise in global oil demand seen weaker than before

[May 12, 2010]  LONDON (AP) -- Global oil demand is expected to rise less than previously expected in 2010, the International Energy Agency said Wednesday, as it cut its forecasts by a daily 220,000 barrels, to 86.4 million barrels a day.

The Paris-based agency said the change is based on fresh forecasts of rising economic growth -- resulting in more oil demand -- tempered by expectations of higher oil prices, which would dampen appetite for crude and its products.

"Oil demand has been stronger than anticipated in some OECD areas -- North America and the Pacific -- but somewhat weaker in two non-OECD regions (Asia and the Middle East)," the IEA said.

The 31 countries in the Organization for Economic Cooperation and Development are among the world's richest.

In its monthly report on oil markets, the IEA also expressed "serious concerns" about the high public debts levels seen in eurozone countries, which pose a "clear and present danger" to the global economy and, therefore, oil demand.

"Eurozone finance ministers are striving to ensure that potential contagion from Greece's debt crisis could be contained," the IEA said. "However, serious concerns persist on government resolve to reduce public deficits quickly enough and to implement genuine reform."

The IEA also said that overzealous efforts to regulate excessive speculation in the futures market could backfire and reinforce volatility.

"Physical players warn of the risks to investment if they have to divert a greater share of capital to meeting the higher costs of hedging," the IEA said. "This is not to argue against oversight and speculation, merely to observe that moves aimed at avoiding market manipulation ... if hastily formulated, could reinforce volatility if they hamper investment and price discovery."

The IEA said that while there was "a lack of clear evidence" that changes in oil prices had a direct relationship with speculative trading, "wide ranging curbs on market activity now look likely."

Many analysts say that the continued strength of oil prices, which mostly have fluctuated between $70 and $85 over the past months, can be attributed in part to speculation, which has trumped the very slow recovery of oil demand and the huge stockpiles of crude and refined products in the United States.

The IEA estimated the drop in jet fuel and kerosene usage caused by the disruptions to aviation by the eruption of Iceland's Eyjafjallajokul (pronounced ay-yah-FYAH-lah-yer-kuhl) volcano at some 10 million barrels in April.

"However, the episode is not over yet, as Eyjafjallajokul has again occasionally disrupted flights in several European areas since early May," the IEA said. "If disruptions persist in May global jet fuel/kerosene demand could be weaker than currently thought."

Near midday in Europe, the June Nymex contract was down 7 cents to $76.30, while in London, Brent crude was up 49 cents to $80.98 on the ICE Futures exchange.

[Associated Press; By PABLO GORONDI]

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.