June 11 (Bloomberg) -- The International Energy Agency raised its global oil-demand forecast for the first time in 10 months on signs that the economic slowdown is abating.

The adviser to 28 nations increased its global oil demand estimate for this year by 120,000 barrels a day to 83.3 million barrels a day, driven by consumption in U.S. and China. Consumption worldwide will contract by 2.9 percent from last year, the biggest drop since 1981, the agency said in its monthly report today.

“These revisions do not necessarily imply the beginnings of a global economic recovery, and may only signal the bottoming out of the recession,” the Paris-based agency said. “It’s a fairly modest uptick. Underlying demand levels remain weak.”

Oil prices have climbed 61 percent this year. They traded above $72 a barrel in New York today for the first time in seven months on growing optimism about an economic recovery and as a weaker dollar drives investors toward commodities. Futures in New York rebounded to a seven-month high of $72.30 after the release of the report from as low as $71.32 earlier in the day.

Confidence in the world economy rose for a third month as U.S. job losses slowed and global production improved, a Bloomberg survey of users showed yesterday. A U.S. Labor Department report on June 5 showed the country lost the fewest number of jobs since September last month.

Tighter Fundamentals

Rallying crude prices have been driven by both tighter supply-demand fundamentals and “short-term flows” of speculative capital, David Fyfe, head of the IEA’s oil industry and markets division, said in a phone interview from Paris.

Analysts expect prices to average $61 a barrel in the fourth quarter of this year, according to the median of forecasts compiled by Bloomberg. Goldman Sachs Group Inc. said this month it expects oil to reach $85 by the end of the year,

The outlook for 2009 consumption in the most industrialized countries, the Organization for Economic Cooperation and Development, was raised “marginally” to 45.2 million barrels a day. Inventories of crude and refined products in these nations amounted to 62 days of demand as of the end of April.

The forecast change in demand was countered by expectations for higher output from outside the Organization of Petroleum Exporting Countries.

Russia, Colombia

The IEA increased its 2009 forecast for non-OPEC supply by 170,000 barrels a day from last month because of higher-than- expected growth in Russia and Colombia, and improved performance in the North Sea. Still, Non-OPEC output will fall by 100,000 barrels a day this year to about 50.5 million barrels a day.

OPEC boosted output for a second month in May, according to the IEA, even as the group pledged to fully enact record supply cuts announced last year.

The 11 OPEC nations bound by production quotas pumped 25.96 million barrels of crude oil a day last month, 110,000 a day more than in April, the IEA said. The group’s official limit is 24.845 million a day. That means OPEC completed 74 percent of its promised reduction, compared with 76 percent in April.

OPEC will meet Sept. 9 in Vienna to review production quotas. It agreed in March to keep supply unchanged as members continue to implement reductions agreed last year, totaling 4.2 million barrels a day, to stem plunging prices.

All 12 OPEC members, including Iraq, will need to supply about 27.7 million barrels of crude a day this year to meet global demand, the IEA report showed. That’s a reduction of 200,000 barrels a day from last month’s assessment because of stronger non-OPEC output.

Saudi Output

Those same 12 OPEC members pumped 28.38 million barrels a day in May, 160,000 barrels a day more than the previous month, according to the IEA. Crude output in Saudi Arabia, OPEC’s biggest producer, rose to 8.05 million barrels a day in May, from 8 million a day in April.

Oil stored on tankers globally declined by about 27 percent to 85 million barrels in May as higher prices reduced the incentive to keep crude, the agency said.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

Last Updated: June 11, 2009 05:36 EDT