U.S. may cut oil demand view, stoking OPEC argument

WASHINGTON Mon Jun 6, 2011 5:39pm EDT

WASHINGTON (Reuters) - High fuel prices and weak U.S. economic numbers could prompt the U.S. government's energy forecasting agency to cut its global oil demand estimate for the second month running, a move that may stoke already contentious debate within OPEC over raising oil output.

While the U.S. Energy Information Administration's monthly energy outlook on Tuesday is unlikely to sway the outcome of Wednesday's OPEC meeting, it will be the most up-to-date set of supply and demand data that ministers will consider.

"I would look for another small to moderate trimming in global oil demand expectations in the neighborhood of 100,000 barrels per day," Guy Caruso, former head of the EIA and current energy analyst at the Center for Strategic and International Studies, said about the EIA's forecast.

That may be a double-edged sword.

For OPEC hawks who oppose an output rise, reduced demand could be reason to hold back; for Saudi Arabia and its Gulf allies pushing for an output rise, signs of a faltering economic recovery are a key reason for pumping up output.

In last month's forecast, the EIA reduced its estimate for global oil demand growth this year by 120,000 barrels per day to 1.4 million bpd, the biggest cut in 10 months. But OPEC made no change, leaving its forecast in sync with the EIA; the International Energy Agency pared slightly to 1.3 million bpd.

OPEC's new monthly forecast will be issued this Friday, followed by the IEA's outlook June 16.

While oil demand is seen strong in India and China, recent bad U.S. economic news suggests the American economy could be slowing. The U.S. created only 54,000 jobs in May, about one-third of what had been expected, and consumer spending and manufacturing figures have disappointed.

"Demand over the last month has been weaker than expected in the U.S.," said Tim Evans, energy analyst for Citi Futures Perspective in New York. pointing to U.S. fuel use that fell 5 percent in May from the year before. "It seems to me there is a lot of room for a downward revision."

Phil Flynn, energy analyst at PFGBest Research in Chicago, agreed, saying the economy had hit a "soft patch".

Worried that crude prices near $115 a barrel are undermining economic growth, Gulf producers including Kuwait and the United Arab Emirates favor an increase in output when the Organization of the Petroleum Exporting Countries meets.

Other more hawkish OPEC members like Venezuela and Iran are against boosting output.

"Various key members of the cartel...believe the market is well supplied, and this release from the EIA is only going to add credence to their case," said Matt Smith, commodity analyst at Summit Energy Services in Louisville, Kentucky.

However, the United States and other western industrialized countries that are members of the IEA have urged OPEC to pump more oil because of expected higher demand later this year.

Evans said he didn't think the EIA forecast would influence OPEC's decision-making on output levels. "I think what OPEC is going to be looking at is the demand they see in the market in terms of direct customer demand for their oil," he said.

(Reporting by Tom Doggett, editing by Jonathan Leff)

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