Wednesday, October 13, 2010

Crude Surges amid Demand Upgrades, China Imports Reach Record High

Crude oil strengthened further in European session as both the International Energy Agency (IEA) and the OPEC raised their forecasts on global oil demand as global economic recovery provides support for oil consumption. Also supporting oil prices was China's trade data in September. Strong imports for crude oil indicate resilience in domestic demand. WTI crude oil price soared to 82.9, up from yesterday's close of 81.67. Gold crawled above 1360 in European session as renewed selling pressure in USD raised demand for safe haven. GFMS forecasts the metal to reach 1400 by the end of the, citing low interest rates, the European sovereign debt crisis and fears about an economic slowdown factors supporting prices.

The IEA raised its global oil demand outlook to 86.9M bpd in 2010 and 88.2M bpd in 2011. That's +0.3M bpd more than last month's forecast for both those years. According the agency, the upgrades were driven by signs that 'the underlying demand trend in the OECD is more resilient than previously thought'. On the supply side, non-OPEC supply will increase to 52.6M bpd in 2010 (unchanged from August's estimates) from 51.5M bpd in 2009, followed by a rise to 53.1M bpd in 2010 (August: 52.9M bpd). Call on OPEC will be around 28.3M bpd (August: 28.8M bpd) in 2010 and 29.3M in 2011 (August: 29.3M bpd).

At an OPEC report released yesterday, the cartel also raised its demand forecast for 2010 to 85.6M bpd (August: 85.5Mbpd) while keeping that for 2011 unchanged at 86.6M bps. The 'stronger-than-expected, stimulus-led economic growth in the first half of the year' was the key reason for the upgrade. Non-OPEC supplies are revised higher for both 2010 and 10 as driven by growth in Brazil, Canada, Azerbaijan, and Kazakhsta. In contrast with the IEA, the OPEC revised lower the demand for the cartel's production for 2011 to 28.8M bpd from 28.9. The cartel forecasts demand for its production would be around 28.6M bpd for 2010 and 28.8M bpd for 2011. The estimate for 2010 represents a mild drop from August's reading.

The China trade report showed that export growth slowed to +25.1% in September from +34.4% in August, import growth slowed to +24.1% from +35.2% while trade surplus narrowed to $16.9B from $20B. The market was not disappointed by the slowdown but viewed it as a result of strong base effect last year. Imports for crude oil surged to 23.29M metric tons (2.69M bpd), up +35.4% and +11.4% on annual and monthly basis respectively. The record-high imports for crude oil signals the country's robust demand for the commodity.

Base metals rallied despite decline in imports from China. Rather investors were thrilled by the prospect that the market will be 'tighter' next year. LME copper surged to a 27-month high while lead also rose to the highest level in 6 months. Chile's Codelco, the world's biggest copper producer, expects a 'tighter' market next year as 'China is continuing to have a strong demand and from the supply side we have only a couple of new projects coming on- stream'. In September, China imported 368410 tons of unwrought copper and copper products (-7.68% y/y and -2.93% m/m) and 65772 metric tons of unwrought aluminum and aluminum products (-66.42% y/y and -9.44% m/m).

Courtesy Oil N'Gold .Com



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