New York (Platts)--9Feb2010/558 am EST/1058 GMT

Global oil prices are set to strengthen while refining margins will remain weak over the next several years, Barclays Capital said in its Global Energy Outlook Monday.

The report cites Barclays' "preference for crude oil- and upstream-biased investments, relative to natural gas and downstream oil," adding there is "price support for crude in 2010 and even more so in 2011 as demand recovers, inventories return to balance and new supply slows."

In contrast, Barclays analysts said they "expect refining capacity additions to exceed demand growth at least until 2012."

Upstream, the Barclays report forecasts WTI will average $85/barrel in 2010. "We believe price gains will be skewed towards H2 09 and expect the upward momentum to continue in 2011, when we forecast the price of WTI to average $97/bbl," said the analysts. "On the demand front, we expect the recovery that started in spring 2009 to continue into 2010."

Barclay's expects 2010 global oil demand "to grow slightly below trend, rising by 0.98 mb/d, virtually entirely due to higher non-OECD demand (+0.95mb/d)." "

Crucially, the three pillars of non-OECD oil demand growth -- China, India, and the Middle East -- have weathered the 2009 downturn extremely well," said Barclays.

OECD demand will "remain flat in 2010, with higher North American consumption offsetting small declines in Europe and Japan," said Barclays.

NON-OPEC SUPPLY TO 'DETERIORATE'

As for supply, "OPEC's supply-side management in 2010 is set to benefit from non-OPEC's actual and projected weakness," said Barclays analysts, adding they "believe the prospects for non-OPEC supplies are set to deteriorate."

"The likelihood of last year's strong production performance from Russia and the US being repeated this year is small, in our view," said Barclays. "In the US, positive y/y effects should fade and potentially revert. Although a bunch of new projects are scheduled to come on stream in 2010, gross capacity additions are set to fall short of 2008 and 2009 levels."

In Russia, "fewer new projects are scheduled to commence production, whereas the better investment climate that developed in 2009 due to tax incentives might not hold as the government's budget concerns diminish with higher and stabilizing oil prices," said Barclays.

In the downstream, Barclays says while the bottom is near, the "Dark Ages" of weak margins will continue.

"We expect that the global refining utilization rate will remain depressed, around 82%, between 2010 and 2011," said Barclays. "As a result, we think any margin uptick will be very modest over the next several years."

They said gasoline crack spreads should outperform diesel margins, "thus we think that the US refiners could outperform the European and Asian refiners."

--Beth Evans, beth_evans@platts.com