OPEC cut its world oil demand growth forecast due to economic weakness in Europe and the United States, taking the opposite view to the U.S. government's energy forecaster and reflecting growing uncertainty over the outlook.
The monthly report from the Organization of the Petroleum Exporting Countries (OPEC) on Thursday also reported higher supply from its members as Libya's oil industry recovers, with production almost 1 million barrels per day (bpd) above target levels in January.
OPEC, the source of more than a third of the world's oil, said global demand would rise in 2012 by 940,000 bpd, which is 120,000 bpd less than expected last month. Daily oil use is expected to average 88.76 million bpd.
"Worries about the U.S. economy, along with the EU debt problem, are adding more uncertainty to world oil needs over the next 12 months," the report said. "Firming retail petroleum prices are expected to have a negative impact on oil demand across the globe."
In contrast to OPEC, the U.S. Energy Information Administration raised its estimate of global demand growth in 2012 by 50,000 bpd to 1.32 million bpd in a report on Tuesday. That was its first increase in four months.
The third of this month's trio of closely watched oil forecasts is due on Friday from the International Energy Agency. The Paris-based agency is also expected to trim its demand outlook.
Oil briefly pared gains after the OPEC report was issued, but Brent crude was trading near a six-month high above $117 a barrel as the prospect of a cut in Iranian supply due to tension over its nuclear work outweighed the weaker demand forecast.
Some analysts, including Caroline Bain at the Economist Intelligence Unit, expect the market to continue to focus on the potential for supply-side shocks rather than weaker demand.
"Until the supply outlook stabilizes, the oil price is expected to continue to reflect this uncertainty rather than the likelihood of lower growth in global oil consumption in 2012," she said.
LOOKING FOR ALTERNATIVES
OPEC did not mention the tension over Iran, which is its second-largest producer, although it said a narrowing price gap between lower-quality crudes and higher-quality grades partly reflected concern about Middle East supply.
Demand for heavy, sour grades has risen, particularly for Russian Urals from European and Chinese buyers, "who see this crude as a suitable alternative to some rival Middle East barrels," OPEC said.
"European refiners in particular have been intensively searching for alternative grades," it said.
The risk to future supplies is also outweighing signs that actual OPEC output is rising and already well above expected demand levels.
With Libya's production recovering after last year's civil war, OPEC said that according to secondary sources, its crude oil production rose in January to 30.90 million bpd, the highest since October 2008.
That is 900,000 bpd above both the organization's supply target of 30 million bpd adopted at a December meeting and OPEC's forecast of world demand for its crude this year.
OPEC also lowered the estimate for demand for the group's crude this year by about 100,000 bpd to 30.04 million bpd because of the weaker global demand outlook.
Speaking last month, OPEC Secretary General Abdullah al-Badri said he was not concerned about too much oil in the market as OPEC's production would vary month to month.
