WASHINGTON (MNI) - The following are excerpts from OPEC's Monthly Oil Market Report for October released Tuesday, in which its forecats for 2009 world oil demand remains unchanged -- down 1.4 million barrels per day -- before increasing by 0.75 million barrels per day in 2010:

World Oil Demand

World oil demand in 2010 is forecast to grow at 0.75 mb/d to average 85.1 mb/d. Although most of signs are pointing toward higher oil demand, the downward risk factors are weighing on the forecast. The low base in world oil demand in 2009 is suggesting a stronger increase in oil demand growth for 2010. However, a potentially weak economic recovery along with higher oil prices are the two main factors that may dampen world oil demand in the coming year. Should prices increase and be sustained above the current level, oil demand growth will be pushed down by more than 1% in the OECD countries. Given current oil prices, recent improvement in the GDP forecasts for both OECD and Developing Countries could push oil demand growth 0.5 mb/d higher next year.

Although certain signs are indicating stronger oil demand, weak consumption in the US along with a declining dollar is likely to suppress positive performance in oil demand in the fourth quarter. Hence, world oil demand is forecast to show a decline of 1.4 mb/d in 2009 to average 84.3 mb/d, unchanged from last month.

OPEC Production

OPEC crude oil production averaged 28.99 mb/d in October, according to available secondary sources, an increase of around 40 tb/d over the previous month. Minor increases came from Kuwait, Nigeria, and Angola, while minor decreases experienced in Venezuela and Iraq. OPEC crude production, not including Iraq, stood at 26.52 mb/d in October, an increase of 50 tb/d over the previous month.

Outlook

A cautious view on economic growth in 2010 would imply a moderate recovery in oil demand. Our forecast for global GDP sees a growth of 2.9% in 2010 with oil demand increasing 0.8 mb/d. This is well below the prerecession demand trend. Next year, all the demand growth is seen to come from non-OECD countries which are projected to grow by 0.9 mb/d, while OECD demand is seen contracting by 0.1 mb/d. It is important to note that the absolute level for OECD oil demand in 2010 is forecast to reach 45.7 mb/d implying a massive drop of 3.5 mb/d from the level witnessed in 2007 and a return to the levels last seen in 1996. Downside risks to the GDP growth forecast exist, especially crucial in the period extending from the current quarter to the second quarter of next year. Unemployment is still to peak in OECD countries, growth in consumer expenditures and private investment will remain modest and talk of exit strategies could trigger market reactions with implications on consumer and business sentiment, interest rates and ultimately on the pace of the economic recovery.

Moreover, even if the expected economic recovery materializes, it remains to be seen whether demand would be able to return to pre-crisis levels. Energy policies and behavioural changes are bound to have some impact on consumption and this will gradually feed into overall demand patterns, especially in key sectors such as transportation. However, it is still premature to assess the full effect of these changes. In the meantime, oil demand growth over the coming quarters is subject to ongoing risks to the economic outlook. This is particularly significant as we head towards the traditionally lower demand season in the second quarter of 2010. Lower-than-expected oil demand would add further pressure on weak fundamentals, given that the stock overhang is already high by historical standards.

United States

Along with the economic slowdown, higher gasoline prices have had a minor effect on US consumption, putting October demand at a negative 4.4% y-o-y. Gasoline usage, which has been growing rapidly since June to reach as high as 6.7% in September, flattened out in October. The same slowing trend applies to all products, especially industrial ones. The economic slowdown has badly eroded US oil demand for both this year and the last. It is expected that total US oil consumption will end the year with a massive decline totaling 0.65 mb/d.

China

Chinese apparent oil demand for September is exceeding all expectation. Although the countrys September apparent oil demand grew dramatically, the growth related to actual consumption is estimated at 0.5 mb/d y-o-y. The rest is used to fill the countrys strategic storage. Due to better-than-expected economic activities, Chinas oil demand was revised up by 50 tb/d to show total growth of 0.17 mb/d in 2009. Chinas economic stimulus plans have pushed the countrys oil demand up in the second half of the year. The flood of spending has also supported a double digit increase in new car registrations.

Demand For OPEC Crude

Demand for OPEC crude in 2009 was revised up 70 tb/d to now stand at 28.7 mb/d, representing a decline of 2.3 mb/d from last year.

Demand for OPEC crude in 2010 is projected to average 28.5 mb/d, representing an upward revision of around 110,000 b/d from the previous assessment as world oil demand was revised up and non-OPEC supply remained unchanged. Required OPEC crude is forecast to decline by 0.2 mb/d following two consecutives annual declines. The first half of the year is still showing a drop of 0.4 mb/d, while the second half is estimated to see positive growth of around 0.1 mb/d, indicating a sign of recovery.

Russia Production

Russian oil production is projected to grow by 0.11 mb/d over a year earlier to average 9.89 mb/d in 2009, indicating a minor upward revision of 8 tb/d from last month. The healthy production level in the third quarter which represented record-high production levels for each month required an upward revision which was partially carried over to the fourth quarter. While Russia supply forecast encountered many downward revisions as the year progressed, the improvement of the tax system as well as higher oil prices both allowed Russia to reverse the declining trend experienced in the early part of the year.

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