OPEC sees demand for its oil falling further

Rival oil supplies and the sluggish pace of recovery in world consumption will shrink demand for OPEC’s crude oil next year, the producer group said on Tuesday.

The Organisation of the Petroleum Exporting Countries also left its estimate of total world consumption this year and next unchanged, suggesting the outlook has reached a turning point after months of lowering forecasts.

Demand for OPEC crude will average 27.97 million barrels per day (bpd) next year, down 480,000 bpd from 2009, OPEC said in its Monthly Oil Market Report. It previously expected a fall of 380,000 bpd.

Oil prices are close to the high for the year around $70 a barrel, having more than doubled from below $33 in December partly on optimism about economic recovery. But OPEC remained cautious about the strength of the rally.

“In light of weakening fundamentals, the sustainability of current prices will mainly depend on clearer signs of improvement in the global economy,” the report by OPEC’s economists said.

“If market expectations for an economic recovery are not fully realised, current price levels could face increasing pressure.”

OPEC, which pumps more than a third of the world’s oil, said world oil demand will fall 1.65 million bpd in 2009 before rising by 500,000 bpd in 2010 as economic growth returns. Both forecasts were unchanged from last month.

While fuel use in top consumer the United States remained weak, OPEC said increases in countries such as China and India were partly offsetting the reduction, leading to no overall change in the demand estimates.

OPEC was the first of three major forecasters to release monthly reports this week and it currently predicts a more modest recovery in global demand next year than others such as the International Energy Agency.

The U.S. government’s Energy Information Administration issues its monthly update later on Tuesday and the IEA, which advises industrialised countries, is scheduled to follow on Wednesday.