Higher oil demand seen from improving world economy

WASHINGTON (Reuters) - Month after month of declining global oil demand appears to have bottomed out thanks to an improving world economy, the U.S. government's top energy forecasting agency said on Tuesday.

The U.S. Energy Information Administration raised its 2009 demand forecast by 10,000 barrels per day in its June outlook, the first time since September that it has increased the demand estimate in its rolling monthly forecast.

World demand is now expected to top 83.68 million bpd this year, up from 83.67 million bpd forecast in May. Demand, however, is still expected to be well below 2008 levels when oil use topped 85.43 million bpd.

"The rate of consumption decline is expected to moderate later in the year," said the EIA, as overall demand in 2009 is still expected to fall by nearly 3 percent from last year.

The agency's monthly forecast comes as recent government data suggests that parts of the U.S. economy are improving, which has pushed oil prices higher. At the same time, economies of major energy-consuming countries, such as China, are also improving.

U.S. monthly real gross domestic product is expected to start increasing in July, three months sooner than previously expected, the EIA said.

"The EIA data showing it has raised its world and U.S. oil demand forecast for the first time since September is a sign that things are stabilizing on the demand side," said Phil Flynn, an analyst at Alaron Trading in Chicago.

Most of the increase in global oil demand reflects higher consumption in the United States, where gasoline use is forecast to be much stronger.

Cheaper gasoline prices this summer compared with last year are encouraging more Americans to drive and take their vacations by car instead of flying.

However, the recent spike in U.S. pump prices, up almost 60 cents a gallon since the beginning of May, is expected to continue to July, when gasoline will peak at $2.70, the EIA said.

Expected higher oil production from non-OPEC countries will help meet increased global petroleum consumption, narrowing the gap between supply and demand.

Global oil production this year is forecast to fall short of demand by about 180,000 bpd, much less than the 320,000 bpd gap the agency previously forecast.

"Higher output in a few countries, such as Brazil, the United States, and Azerbaijan, is expected to offset declining production in Mexico, the North Sea, and Russia," the EIA said.

The global economy will also need more oil supplies from OPEC, which has cut back its production in an effort to keep crude prices high.

"Over the forecast period, prospects for an economic recovery and a rebound in oil consumption signal higher demand for OPEC oil," the EIA said.

(Reporting by Tom Doggett and Ayesha Rascoe; Editing by Lisa Shumaker)