US Energy Information Administration downgrades projections for this year, but still expects global demand to rise by almost 1.5 million barrels a day

Upward pressure on global fuel prices looks set to continue, according to a new short-term
oulook from the US Energy Information Administration (EIA) predicting global demand for oil will continue to recover strongly this year.

The EIA downgraded previous estimates by 10,000 barrels per day (bpd) as a
result of weaker than expected demand from Europe, but the administration still
reckons world petroleum consumption will rise by almost 1.5 million bpd to 85.5
million bpd this year, driven by global economic recovery and booming demand
from Asia.

The EUA’s figures lie in the mid range between similar predictions from the
International Energy Agency, which last month predicted global demand will reach
86.57 million bpd this year, and the Organisation of the Petroleum Exporting
Countries (OPEC), which believes demand will hit 85.24 million bpd.

The figures came as oil prices edged up this week on the back of stronger
than expected US employment figures. The price of US light crude climbed to more
than $86.50 (£57.07), while the price of London Brent crude on the spot market
similarly rose to more than $85.70.

The EIA predicted that non-OPEC countries will increase output by 50,000 bpd
to meet rising demand, but warned that any improvement in supply is likely to be
offset by increased demand from China, which means the gap between global
surplus oil supplies and demand will contract further this year to just 160,000
bpd.

As a result, fuel prices are expected to remain high, with the EIA predicting
gasoline prices in the US this summer will be 48 cents higher than last year,
with prices likely to clear the $3 a gallon mark at times.

The administration predicted that high prices would lead to lower than
expected demand, noting that "the boost to gasoline consumption from the
economic recovery is being countered by higher gasoline prices compared with
last year".

Meanwhile, the weak euro has led to high prices at the pump across Europe,
while the UK experienced near-record fuel prices over the weekend, with average
petrol prices reaching 119.46p a litre – marginally short of the 119.7p record.

The trend will further fuel concerns that oil prices could rise to more than
$100 a barrel again as the global economic recovery continues, providing fresh
ammunition to those business leaders and geologists who fear global oil supplies
are close to peaking.

However, the growing evidence that people are driving less or investing in
more fuel-efficient vehicles to combat rising prices will also drive speculation
that oil demand could peak as economies transition towards alternative fuel
sources.

For example, the EIA figures suggest that falling production at US
refineries will be partly offset by a 100,000 bpd increase in ethanol blending
that will result in biofuel blends accounting for 8.9 per cent of all gasoline
consumed in the US this year.

Meanwhile, geologist Colin Campbell, one of the world’s leading peak oil
theorists, told Reuters this week that the challenge presented by peaking oil
supplies could be met by peaking global demand.

He argued that there is a "price limit" of about $100 a barrel, at which
point economies would rapidly switch to alternative fuel sources. However, he
warned that demand is unlikely to fall fast enough to match dwindling supplies
and as a result, unrest could still occur as people are forced to rapidly reduce
their oil consumption.