WORLD oil demand, led by China, is expected to rise by 1.7 per cent to 87.78 million barrels a day in 2011, helping to underpin prices.

It will also pull down inventories in major industrialised nations and underpinning prices, the US Energy Information Administration said today.

That gain of 1.43 million barrels a day follows a rise of 2 million barrels a day, or 2.4 per cent, this year, which will be the first since 2007 and put demand near pre-recession levels.

The bulk of the demand growth in both years comes from developing countries, led by China, the second-biggest oil consumer. Chinese demand is expected to grow by 8.8 per cent, or 730,000 barrels a day, this year to 9.05 million barrels a day. Demand is 2011 is expected to rise 5.9 per cent, or 530,000 barrels a day, to 9.58 million barrels a day.

Demand in the major industrialised nations that comprise the Organization for Economic Cooperation and Development, is expected to rise by 0.6 per cent to 0.8 per cent in 2010 and 2011.

The 2010 rise of 2 million barrels a day in demand is nearly double the expected increase in oil production from outside the Organisation of Petroleum Exporting Countries, the EIA said.

This boosts global demand for OPEC oil and leads to a drawdown in oil inventories held in offshore floating storage and on land in the OECD and will support crude prices. The EIA lifted its projections for 2011 US benchmark crude oil prices by $US2 a barrel to $US89 a barrel.

OECD oil inventories are estimated to end 2010 at 2.73 billion barrels, enough to cover 58 days of forward demand. That's roughly 94 million barrels, above the five-year average, when the level of demand cover was 53 days.

The EIA said it expects OECD stockpiles to decline throughout 2011, but remain high by historical comparison. The level of stock cover is projected at 56 days at the end of 2011, which would be the lowest level since 2007.

Non-OPEC oil supply was expected to grow by a little more than 1 million barrels a day in 2010, to 51.5 million barrels a day, in the biggest rise since 2002. The gains come from the US, China, Russia and Brazil.

But non-OPEC supply is expected to fall by 280,000 barrels a day in 2011, just the third drop in the past 15 years, with the other two attributed to hurricane-related outages in the US Gulf.

The EIA said it expects OPEC oil output to rise by 300,000 barrels a day in 2010 and by 400,000 barrels a day in 2011. OPEC's surplus capacity "should remain close to 5 million barrels a day, compared with 4.3 million barrels a day in 2009 and 1.5 million barrels a day in 2008," the EIA said.

Source: http://www.theaustralian.com.au/business/news/china-to-lead-oil-demand-in-2011/story-e6frg90o-1225967356960