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IEA's Oil Demand Forecasts Still Exceed OPEC's, Despite Downgrades Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Tue Nov 14 17 22:23 ET

Surprising stock-build and demand downgrade facilitated the correction in oil prices. Both crude oil benchmarks remained under pressure on Wednesday after sharp selloff bringing prices to the lowest levels in more than a week. Base metals also fell, led by the -5.68% decline in nickel price. In the precious metals complex, the benchmark Comex gold and silver contracts added -0.33% and +0.17% respectively. US dollar weakened against major currencies, with the exception of the commodity currencies (AUD, NZD and CAD) which were weighed down by disappointing Chinese data and the selloff in oil prices. Weaker-than-expected GDP growth in Australia in 3Q17, released earlier today, has exacerbated Aussie's slump. Stock markets eased. In Wall Street, the DJIA and S&P 500 indices slipped -0.2% and -0.3% respectively. Safe haven demand gained amidst the fall in equities, benefiting Treasuries (yields lower). In the US, 2-year yields slid almost -1 point to 1.69% while 10-year yields were down -3 points to 2.38%.

Oil Markets

The Paris-based International energy Agency (IEA) unveiled in the monthly report that it has lowered the global oil demand growth forecast, by -0.05M bpd, to 1.5M bpd for this year. For 2018, the agency projects the demand would expand 1.3M bpd, down -0.19M bpd from last months' forecast for 2018. As a result, oil demand would reach 97.7M bpd this year and 98.9M bpd in 2018. It warned that the market might be oversupplied in 4Q17. While the market has used the downgrades as an excuse to lighten their long positions in oil and noted that the IEA has "poured cold water" on OPEC's upgrades on oil demand, one should note that IEA's demand forecasts for both this year and 2018 remain higher than OPEC's (2017: 96.9M bpd; 2018: 98.5M bpd), despite the downward revisions.

On the supply side, the IEA warned of ample supply from US shale, noting that "even after some modest reductions to growth, non-OPEC production will follow this year's 0.7M bpd growth with 1.4M bpd of additional production in 2018 and next year's demand growth will struggle to match this". It added that, assuming the absence of any geopolitical premium, "we may not have seen a ‘new normal' for oil prices" – signaling that the recent oil rally could be short-lived.

After market close, the industry-sponsored API estimated that US crude oil inventory rose +6.5 mmb in the week ended November 10. For refined oil products, gasoline stockpile gained +2.4 mmb while distillate dropped -2.5 mmb. The US Energy Information Administration (EIA) today probably shows. a -2.2 mmb fell in crude oil inventory. Gasoline and distillate stockpiles probably dipped -0.92 mmb and -1.27 mmb respectively.

Dataflow

Eurozone's data generally delivered positive surprises. Germany's GDP expanded +0.8% q/q in 3Q17, up from +0.6% previously. For the region as a whole, GDP expanded +0.6%, in line with expectations in the third quarter. Market sentiment improved meaningfully. The ZEW survey showed that Eurozone's economic sentiment rose to 30.9 in November, beating consensus of 29.3 and October's 26.7. The corresponding reading for Germany added +1.1 points to 18.7. Meanwhile, the current situation index climbed +1.8 points higher to 88.8. The market had anticipated a milder increase to 88. UK's inflation shows signs of moderating in October. Headline CPI was flat at 3% y/y last month, compared with consensus of +3.15. Core CPI also steadied at +2.7%, compared with expectations of +2.8%. Today, the focus turns to the employment data. Jobless claims probably increased +2.4K in October, up from +1.7K a month ago. The ILO unemployment rate probably stayed unchanged at 4.3% in the three months through September, while the number of payrolls increased +50K during the period (easing from a +94K addition a month ago. the growth of average weekly earnings might have moderated to +2.1% y/y I the three months through September, from +2.2% previously.

In the US, the inflation report is on the radar screen. Headline CPI probably eased to +2% y/y in October, from +2.2% in September. Core CPI probably steadied at +1.7% for the month. Upside surprises were seen in the PPI report. Headline PPI improved to +2.8% y/y in October, from +2.6% a month ago. the came in stronger than consensus of +2.3%. Core PPI accelerated to +2.4% y/y last month, from September's +2.2% The US would also release October's retail sales and November's Empire State manufacturing index on the same day. Retail sales probably stayed flat from a month ago in October, following a +1.6% growth in the prior month. The preliminary reading for the Empire State manufacturing index might have slipped -5.2 points to 25 in November.

 

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