OPEC cut its forecast for world oil demand in 2009 further on Friday but said the worst appeared to be over for the market, adding to signs of a turning point in the outlook for oil.
The Organization of the Petroleum Exporting Countries in its monthly report cut its demand forecast to a contraction of 1.62 million barrels per day (bpd). It previously expected a decline of 1.57 million bpd.
But the group was cautiously optimistic about the outlook, saying demand seemed to have settled down after months of downward revisions due to the economic crisis, and it said its oil supply curbs should bring inventories down.
In light of the considerable challenges the world economy and commodity markets, particularly the oil market, have undergone, the worst appears to be behind us, OPEC said.
Industrial production activities are steadying and in some parts of the world have even improved slightly. This should stop the bleeding in oil demand.
Oil prices have had a turbulent year, hitting an all-time high of over $147 per barrel in July 2008 before plunging toward $32 in December. Since then they have more than doubled due to hopes of economic recovery.
OPEC's report follows those of the U.S. Energy Information Administration and the International Energy Agency, which earlier this week slightly raised their 2009 global demand estimates.
I think the tide has turned on the view for oil demand, said Mike Wittner, oil analyst at Societe Generale.
U.S. crude oil were trading around $71 per barrel at 1240 GMT (8:40 a.m. EDT) on Friday.
Oil demand has been falling quickly in the developed nations of the Organization for Economic Co-operation and Development, but there are increasing signs that the downturn is moderating.
OPEC agreed last year to cut its output by 4.2 million bpd, equal to about 5 percent of daily world demand, from its output levels in September in an attempt to support prices.
The group said its efforts to curb excess supply had helped turn the market around and would reduce global oil inventories to more healthy seasonal levels by the end of the year.
Still, the report said OPEC's output, excluding Iraq, rose to 25.90 million bpd in May from 25.78 million bpd in April, suggesting rising prices are prompting members to relax output discipline.
The rise in OPEC output meant it moved further away from its goal of reducing output, complying with 75 percent of its supply cuts in May, versus 78 percent in April, according to Reuters calculations based on OPEC data.
But analysts said even this level of compliance should ensure a reduction in global oil stocks by the end of this year.
If OPEC can hold output steady they are going to get pretty significant stock draws in the second half of this year, Wittner said.
Although OPEC reduced its forecast for global oil demand this year, it expects a much smaller contraction than the IEA's forecast for a 2.47 million bpd decline.
OPEC held its output policy steady when it met in Vienna on May 28. It next meets on September 9.
(Editing by William Hardy)