By Richard Swann on October 9, 2009 6:29 AM

Cautious optimism best describes the International Energy Agency's latest assessment of the world oil market, which suggests an upturn in oil demand is just around the corner.

In its latest monthly report, the IEA has raised its estimates of global oil consumption notably for 2009 and 2010, shifting the Q4 2009 figure upward by more than 500,000 b/d.

It is still expecting a big drop in overall demand this year, but most of this is now expected to be recouped in 2010, with year-on-year comparisons expected to start showing growth once more before the end of 2009.

The revisions stem from a rosier outlook for the world economy, which seems to be emerging from recession more quickly than previously expected.

This outlook draws on new assumptions from the International Monetary Fund and stronger than expected economic data in North America, some developing economies in Asia and Latin America.

But a closer reading of the IEA report still gives plenty of grounds for caution. This probably won't surprise you, given that prudence is pretty much hard-wired into the IEA's DNA.

The agency notes that prompt demand remains lackluster to say the least, with some key indicators such as European demand for naphtha showing no signs of joining the party any time soon.

And still looming over the market is a significant overhang of oil in storage. OECD stocks fell slightly in August, but seem to have risen again in September, according to preliminary data.

Despite OPEC's efforts to cut output this year, consumer stocks remain stubbornly above five-year average levels, and are likely to remain that way through the rest of this year, barring an unforeseen surge in demand or prolonged bout of cold winter weather in the northern hemisphere.