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Weak demand threatens oil's recovery from six-year low

Oil bulls who have cheered a rebound of 40 per cent from a six-year low should take heed that the rally is in danger unless demand accelerates.

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Global oil demand will grow just 1.3 million barrels a day to 94.58 million next year, according to the Energy Information Administration. Photo: EPA

Oil bulls who have cheered a rebound of 40 per cent from a six-year low should take heed that the rally is in danger unless demand accelerates.

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The omens are not good. The US government expects global consumption to grow next year at less than half the rate of 2010, when the world was emerging from a previous recession. The growth is insufficient to close the gap with rising supply, according to Royal Dutch Shell.

The last time oil crashed, during the 2008 financial crisis, China's appetite for commodities seemed insatiable, and powered prices higher. This time, Chinese fuel use is growing at half the rate of the past decade, and sliding US shale output could reverse as prices rise.

"The recent rally appears driven by investors looking at catching the bottom of the market and the expectation that US oil production has reached a turning point," said Harry Tchilinguirian, BNP Paribas' head of commodity markets strategy. "But fundamentals, notably in the US, have not changed much."

West Texas Intermediate crude, the US benchmark, has climbed more than US$17 a barrel from a six-year low of US$43.46 on March 17.

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Global oil demand will grow just 1.3 million barrels a day to 94.58 million next year, the Energy Information Administration said on Tuesday. It jumped 2.89 million in 2010 after the previous price crash. In the US, consumption will increase 0.4 per cent next year to 19.44 million barrels a day, leaving it lower than in 2008.

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