OPEC sees demand for its oil falling further

By Joe Brock

LONDON (Reuters) - Rival oil supplies and the sluggish pace of recovery in world consumption will shrink demand for OPEC's crude oil next year, the producer group said on Tuesday.

The Organization of the Petroleum Exporting Countries also left its forecast for total world oil consumption this year and next unchanged, suggesting the outlook has reached a turning point after months of lowering forecasts.

Demand for OPEC crude will average 27.97 million barrels per day (bpd) next year, down 480,000 bpd from 2009, OPEC said in its Monthly Oil Market Report. It previously expected a fall of 380,000 bpd.

Oil prices are close to the high for the year above $70 a barrel, having more than doubled from below $33 in December partly on optimism about economic recovery. But OPEC remained cautious about the strength of the rally.

"In light of weakening fundamentals, the sustainability of current prices will mainly depend on clearer signs of improvement in the global economy," it said in the report.

"If market expectations for an economic recovery are not fully realized, current price levels could face increasing pressure."

OPEC, which pumps more than a third of the world's oil, said world oil demand will fall 1.65 million bpd in 2009 before rising by 500,000 bpd in 2010 as economic growth returns. Both forecasts were unchanged from last month.

Late last year, OPEC agreed to cut output by 4.2 million bpd, equal to about 5 percent of daily world demand, as recession eroded fuel use and sent oil prices sliding.

While OPEC predicts a small rise in world oil demand next year, rising supply from producers outside the 12-member group is expected to crimp demand for OPEC's oil in 2010.

OPEC said supply from non-OPEC countries would rise by 430,000 bpd in 2010, supported by higher output from Russia and revisions to historical data. The increase is 100,000 bpd more than previously forecast.

The report also pointed to a further erosion in OPEC's compliance with agreed supply cutbacks.

OPEC, excluding Iraq, raised output in July to 26.20 million bpd, up from 26.09 million bpd in June, the report said, suggesting higher prices have encouraged members to relax adherence to output curbs.

The rise in OPEC's output in July reduced compliance with the supply curbs to 68 percent from 70 percent in June, according to Reuters calculations based on OPEC figures.

(Editing by Alex Lawler)