Opec raised its estimate for world oil demand growth in 2010 for a third successive month today, but its figures showed economic recovery would not be sufficient to wipe out a surplus of supply this year.
The monthly report from the Organization of the Petroleum Exporting Countries (Opec), which pumps more than one in every three barrels of oil, said demand would rise by 950,000 barrels per day (bpd) in 2010, 50,000 bpd higher than previously forecast.
"Overall, the recent signs of improvement in the global economy have been encouraging," Opec said in the report.
"However, in light of current uncertainties, the forecast for global (economic) growth in 2010 has been left unchanged at 3.5 per cent."
The International Monetary Fund in April increased its forecast for global growth to 4.2 per cent in 2010.
The report from Opec raised its forecast for demand for its crude by 40,000 bpd from last month to 28.85 million in 2010, but this is still 100,000 bpd lower than last year.
Opec also said that members' production continued to rise in April, reducing compliance with their individual output targets.
Members with output quotas, all except Iraq, met only 51 percent of the targeted 4.2 million bpd cuts in April, down from 52 per cent in March,.
Total Opec production including Iraq was 29.25 million bpd in April, the report said, indicating a market surplus of more than 400,000 bpd this year if the group's estimates prove correct.
Opec also raised its forecast for production growth from other countries this year, with non-Opec supply now seen at 530,000 bpd, up by 30,000 bpd from last month's report.
Despite evidence of a market in surplus, oil prices averaged their highest level since September 2008 last month, not once dipping below the $80 a barrel mark.
Opec said the average price of its reference basket of crudes has average $77.20 a barrel so far in 2010, an increase of 64 per cent over the same period last year.
While prices have generally been above the $75 a barrel level seen as necessary by the group to encourage investment, the group fears higher prices could significantly curb the demand it relies on for future revenues.
"The transportation sector, which accounts for almost half of the oil used worldwide, is heading toward turbulence," Opec said, adding government stimulus programmes are artificially supporting the sector.
"Any strong and lasting increase in pump prices will certainly dent demand, not only in the United States, but also across the globe."
Opec said the economic recovery was proportionally stronger in the financial and service sectors, with oil intensive industries lagging, weakening the historical link between GDP growth and higher oil demand.
On the other hand, Opec said increased financial investment in oil and other commodities continues to support prices, though volatility in the market over the past week has contributed to the group's complicated relationship with speculators.
Prices climbed to 19-month high of $87.15 in the first week of May, before falling by more than $10 as concerns over the euro zone debt crisis rose.
"This strong volatility came despite the fact that crude fundamentals remain relatively unchanged and thus highlight the continued impact of financial market sentiment on crude oil prices."
US crude prices were down 67 cents at $76.13 by 12.43pm today, having risen slightly from an earlier low of $75.36.
Reuters