2010: Mixed Outlook for Oil Demand & Prices


". . .the recovery in U.S. oil demand might quicken in 2010."

The glitch in the global economic recovery caused by Dubai's debt problems was largely smoothed over last week after Abu Dhabi agreed a $10-bn bailout of its neighbor.

The news came as a welcome relief for global stock markets and returning confidence also had a part to play in strengthening the oil price.

Certainly, the fact that the markets were able to digest such an unpleasant surprise is a good measure of how robust the recovery really is, but it is not enough to help persuade us that oil demand, or prices, will post significant gains next year, leaving the outlook still very mixed.

U.S. economic data are still improving. Industrial production in the States rose by 0.8% in November, above analysts' expectations. This has yet to lead to a substantial draw in the country's large middle distillate inventories, but it suggests the recovery in U.S. oil demand might quicken in 2010.

However, other economies have lost momentum, having initially seemed to be on the road to recovery. In contrast to the U.S., the Eurozone's latest industrial figures for October show a decline of 0.6% month-on-month, undermining the optimism that had resulted from September's small rise. Given that governments are gradually winding down their fiscal stimulus programs, such a decline might not prove to be a one off—indeed the Bundesbank has said it expects German GDP growth to slow in 4Q09 as state programs are withdrawn—and a struggling industrial sector does not bode well for the region's oil demand in 2010.

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