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OPEC pumps up 2011 demand forecast

aus bus pix Oil Prices Source: AP

THE Organisation of Petroleum Exporting Countries raised its oil-demand forecasts for 2011 on fast-improving economic prospects.

The revision follows upon an upgrade to its medium-term demand forecasts last week and will likely vindicate the group's relaxing attitude toward rising prices and production by its members.

In its November report, OPEC upgraded its forecast for world oil-demand growth in 2010 to 1.3 million barrels a day, an increase of 190,000 barrels.

It also raised by 120,000 barrels a day its forecast for consumption growth next year to 1.2 million barrels a day.

OPEC said its more bullish forecast was largely inspired by improving economic growth in industrialised countries.

Oil consumption outpaced expectations in those countries in the third quarter as they benefited from various stimulus plans.

The group also foresees the world economy growing faster than it previously expected.

It now forecasts the world economy will grow by 4.1 per cent in 2010, above the 3.9 per cent forecast it made in its annual outlook report released last week.

OPEC said the new economic outlook was supported by a better-than-expected expansion in the global manufacturing sector, notably in Germany and India.

Its vote of confidence in the global economy is positive news, as OPEC has a vested interest in downplaying market needs.

However, OPEC's revision merely brings it more in line with other economic forecasters.

The International Monetary Fund forecasts global economic growth at 4.8 per cent this year.

OPEC's upbeat scenario comes after officials from the organisation said a crude-oil price of $US90 a barrel won't damage the global economy's recovery.

That has subtly broadened their view that $US70 to $US80 a barrel is the right price for producers and consumers.

Some members say that non-US consumers don't pay as much as the nominal oil price would suggest because the dollar has weakened.

Indeed, numbers disclosed in the monthly report suggest the difference between real prices paid for OPEC oil - excluding inflation and currency changes - and nominal ones widened to over $US30 a barrel in October from about $US27 a barrel in September.

After concluding its October meeting, the organisation refrained on calling upon its members to respect production cuts agreed in 2008 despite their increasingly lax respect of their commitments.

OPEC said that crude production from its 11 quota-bound members increased by 163,600 barrels a day in October, bringing compliance to agreed cuts to 51.3 per cent.

The figure contrasts with a compliance rate of about 80 per cent early 2009.

However, OPEC maintained a cautious view on growth next year, keeping its global economic-growth forecasts unchanged at 3.6 per cent.

"It is still unclear if the current momentum can be carried over into the coming year," OPEC said.

The group also warned that a shrinking contango - the price difference between contracts that are about to expire and those that are expiring in months ahead - "will likely trigger a release of crude oil from floating storage."

That could potentially put a brake on the current rise on oil prices.

Speculators tend to keep inventories high waiting for better prices but sell when they realise they won't be higher in the future.

OPEC has always warned that high levels of crude storage could endanger prices by abruptly bringing too much supply on the market.