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OPEC Projects Higher Demand Next Year Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Thu Oct 12 17 01:15 ET

Oil prices continued to rise despite surprising increase in US inventory. The market was buoyed by OPEC's upgrade of the demand outlook. The front-month WTI crude oil contract gained +0.75% while the Brent contract was up +0.58%. Prices of refined oil products also rose with the heating oil and the RBOB gasoline contract rising +1.2% and +1.11% respectively. Precious metals slipped with the benchmark Comex gold contract losing -0.37% and the silver contract down -0.43% for the day. In the FX market, US dollar dropped against major currencies with the exception of Japanese yen and Canadian dollar. The DXY index settled -0.3% for the day. Despite the modest movement, EURUSD was the best performer as Spanish political uncertainty eased for now and the ECB is on track to QE tapering next year. Wall Street soared to fresh highs with both the DJIA and S&P 500 indices up +0.18%.

Oil Market

On oil inventory, the industry-sponsored API estimated that crude oil inventory rose +3.1 mmb in the week ended October 6. For refined oil products, gasoline stockpile fell -1.58 mmb while distillate increased +2.03 mmb. The EIA report today is expected to show a -6.02 mmb draw in crude oil inventory. Gasoline stockpile probably increased +1.64 mmb while distillate fell -2.61 mmb for the week. Separately, OPEC's monthly report shows modest upgrade on global demand outlook for 2018. The cartel now expects demand to increase by +1.4 mmb to 96.8 mmb in 2017 and then by +1.4 mmb to 98.2 mmb in 2018. Its previous estimate was 98.1 mmb for 2018. On the supply side, OPEC's output continued to rise on monthly basis despite the cartel's pledge to curb production. Indeed, Nigeria, Libya (both are exempted from the deal) and Iraq saw the biggest output increase in September.

FOMC Minutes

The FOMC minutes for the September meeting anchored the Fed's stance to hike policy rate for one more time this year. The minutes revealed that 12 out of 16 participants projected three rate hikes in 2017. Many believed that another rate increase in this year was likely to be warranted "if the medium term outlook remained broadly unchanged". The members appeared more dovish on the inflation outlook, though. As the minutes suggested, "many" participants continued to believe "cyclical pressures" would "show through to higher inflation" in the medium term and "many judged that at least some of the softening this year to be idiosyncratic". Moreover, the members "continued to project that inflation would edge higher in the next couple of years and that it would reach the Committee's longer-run objective in 2019". Note that the phrase "edge high" is less hawkish that the term "increase" used in July. On the other hand, the minutes also suggested that "several" participants were concerned that "the persistence of low rates of inflation might imply that the underlying trend was running below 2%, risking a decline in inflation expectations". The contradicting views also reflected in the speeches by Fed presidents Williams and Evans. While the former stressed that the Fed is exceeding its full employment target and he remained optimistic that inflation will improve, the latter suggested he was "nervous" about low inflation, suggesting it could take the unemployment rate falling to the area of 3.5% before inflation begins to move higher.

Dataflow

US PPI probably accelerated to +2.6% y/y in September from +2.4% a month ago. The core reading might have stayed unchanged at 2% for the month. On a separate note, initial jobless claims might have dropped to 253K in the week ended October from 260K in the prior week.

 

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