Chinese consumption has always been projected from imports—but at time when they are stockpiling oil, that assumption cannot be taken for granted. (image: eia.doe.gov)

According to a Reuters poll of oil-tracking analysts and organizations, oil demand in 2010 will rise, lifted by an improving global economy generally and by growth in Chinese oil consumption more specifically. As reported by ABC News on Tuesday, the consensus opinion is for demand growth of 1.3 million barrels per day (bpd), as compared to supply growth of only 800,000 bdp. That 500,000 bpd surplus of demand over supply is projected to drain 150 million barrels out of oil (including heating oil) inventories by the end of 2010, as well as exert upward pressure on prices.

The Reuters results are in line with other recent bullish pronouncements about oil consumption. For example, as Jared Killeen reported for us Monday, OPEC predicts a slight rise in global oil demand, as do the International Energy Agency (IEA) and Energy Information Administration (EIA). These expectations are also based on assumptions of a strengthening global economy, led by non-Western nations, particularly China.

There’s reason to think, however, that these predictions may be little more than whistling past the graveyard.

First, remember that the experts who are predicting a growth in oil demand make their living producing, trading, and analyzing oil. People who make their living from a product or service are usually the last to see or believe in a downturn. Realtors were the last to notice that the real estate market was overheated; the big banks were blindsided by the financial meltdown; the heads of GM, Ford, and Chrysler were clinging to business as usual long after everyone else recognized that “business as usual” for them was a synonym for “death spiral.” People in the oil industry have a built-in bias to see demand growing.

Second, economic forecasting is a black art, more akin to divination by tea leaves than to physics. Again, look at how many macroeconomic movements were missed by those whose job it was to watch for them. Or consider how fast forecasts change. In late November, the IEA is forecasting stronger demand; but three weeks earlier they were revising their 2010 forecast sharply downward. Shortly before that, they were forecasting heightened 2010 demand. High-low-high, all within little more than an economic quarter—has the global economy swung so wildly in that time? If it has, then the IEA is responding to legitimate changes in conditions. But if not, their yawing back-and-forth shows the limits of prediction.

Third, let’s get into the main factors cited as driving increased demand for next year: economic recovery in the developed world and growth in Chinese consumption.

• Western recovery: Tuesday, it was released that US third-quarter economic growth was 2.8 percent, not 3.5 percent, as previously estimated—25 percent lower. Unemployment is at 10.2 percent and the “underemployment rate” is 17 percent— more than 1 in 6 Americans who want work can’t find any job or a job paying enough. Projections call for unemployment to rise until next year, then take up to four years to improve. Does this feel like the economy’s getting better? Since economic activity drives oil and gasoline consumption, until the economy really picks up, demand will be depressed.

• Western consumption: Separate from the above, there are short- and long-term factors reducing consumption. Short term: mild winters here and in Europe have reduced demand for heating oil. Long term: studies show that Western oil demand peaked in 2005 and started declining well before the recession.

• Chinese consumption: The truth is, we don’t know what Chinese consumption really is—China does not have a free press or a forthcoming government. All statistics about Chinese consumption are implied from data about their oil imports, but there’s reason to take a haircut off those numbers. For example, China has been stockpiling oil at a ferocious rate, which means that some of their “consumption” is actually “banking” oil for later. If their 2009 consumption is lower than popularly supposed, then future predictions based off it need to be reduced as well.

We could go on—cite how household spending this year was pumped up by short-term government subsidies, like Cash-for-Clunkers or the homebuyer’s credit; mention how domestic legislation or an international treaty on climate change could make burning fossil fuels more expensive, reducing demand; even talk about how China’s strong focus on conservation and alternative energy may dampen growth in its oil demand.

There are as many, or more, factors auguring lower oil demand as higher, which makes recent pronouncements of greater demand by organizations with a vested interest in stronger demand at least somewhat suspect.