By Brai Odion-Esene

WASHINGTON (MNI) – As oil demand growth returns, the U.S. is once
again starting to emerge as a major influence on oil prices, the
London-based Centre for Global Energy Studies said Tuesday in its oil
report for June.

Most oil market observers have consistently looked to Asia — and
China in particular — to drive oil demand this year, and analysis by
Platts shows that China’s apparent oil demand continues to climb at a
steady rate from a year ago, reaching 36.48 million metric tons or about
8.6 million barrels per day in May. This is 9.8% higher than the
corresponding month of 2009.

However, the CGES report notes that while China continues to pull
large volumes of crude oil eastwards from the Middle East and West
Africa, “it may once again start to face competition for that oil from
the world’s largest consumer.”

The CGES argues that the surge in middle distillate deliveries, as
haulage firms benefit from the rebuilding inventories run down during
the recession, is a physical reflection of the more optimistic outlook
for the U.S. economy.

U.S. refinery inputs have also staged a “dramatic” recovery during
the second quarter, the report said, and are now back at levels not seen
since the summer of 2008. This rebound is spurred mainly by growing
demand and slightly improved margins that resulted from the slump in
crude oil prices.

However, the CGES says despite the recent oil demand surge in the
U.S., it remains of the opinion that the rate of global demand growth —
which has averaged more than 2.5% in the first half of 2010 — “will
ease in the second half of the year.”

It argues that the strong growth in the first half of 2010 reflects
the even larger 3.2% fall in demand in the first half of last year. In
contrast, the second half of 2009 saw a modest rise of 0.7% in global
oil demand and this year’s second half growth is expected to be
correspondingly lower at around 1.1%.

The report sees oil supplies as abundant, with non-OPEC output
expected to grow by around 600,000 barrels per day for the second
consecutive year in 2010.

In the short term, it believes the ongoing oil leak in the Gulf of
Mexico should have little impact on oil production, but warns that a
prolonged drilling ban could start to undermine production by the end of
the year, given the rapid natural decline rates of deepwater wells.

As for oil prices, the report says while recent economic
developments in the U.S. are supportive of oil prices, “global oil
inventories remain abundant and may put a cap on price rises for some
time to come.”

The CGES estimates that global oil inventories (outside the former
centrally-planned economies of the FSU, China and Eastern Europe) were
sufficient to cover 75 days’ worth of forward demand at the start of the
second quarter of this year, one day down from the same point last year,
but still five days higher than at the start of the second quarter of

The report says the direction of oil prices going forward will
depend very much on the pace of economic recovery during the second half
of 2010. “Although the signs from the U.S. appear encouraging, the
outlook for Europe is much less optimistic,” it said.

The CGES expects oil prices to remain volatile around a flat trend
for the rest of 2010.

** Market News International Washington Bureau: 202-371-2121 **