Oil whipsawed by Europe and demand

Then the Energy Information Agency lowered its demand forecast. Market Watch reported that” Global oil demand will grow 1.65% to 88.16 million barrels a day this year, the U.S. Energy Information Administration projected Tuesday. The forecast is a modest 0.3% reduction from levels forecast a month ago, as world economic growth lagged expectations. Still, the EIA warned of a tightening global oil market through 2012, with the demand met by rising production from all producers and draw-downs of commercial oil inventories. The EIA said the coordinated release of 60 million barrels of oil from consumer emergency stockpiles will help reduce the volume by which company-held inventories will need to be too tapped to meet demand. Still those buffer inventories are expected to decline significantly through 2012, when rising demand and slower growth supply from countries outside the Organization of Petroleum Exporting Countries is expected. Global oil demand in the second quarter rose 1.3%, to 87.36 million barrels a day. But that was less than the 1.9% growth projected in the month-earlier forecast. Demand from China, the world's second-biggest oil consumer, rose 8.6% in the quarter, to 10.11 million barrels a day, and accounted for more than half of the 1.54 million-barrel-a-day rise in demand from countries outside the Organization for Economic Cooperation and Development grouping. In the current quarter, demand is projected to rise 1.8%, down from 2% in the June forecast, with China's use up 12.7%.Fourth-quarter world demand is expected to gain 1.2%, to 88.83 million barrels a day, with China up 11.5%.”

The International Energy Agency Also lowered its demand a bit but with a warning. Reuters reported that “ world oil demand growth will accelerate next year, adding to the pressure on available supplies, the International Energy Agency said , contradicting a more conservative outlook from producer club OPEC. In its first 2012 forecast in a monthly report, the IEA, adviser to 28 industrialized countries on energy policy, said oil use would grow by 1.47 million barrels per day (bpd) to a hefty 91 million bpd, compared with 2011 demand growth of 1.2 million bpd. Its growth prediction for next year was slightly lower than a forecast from the United States' Energy Information Administration but more than the 1.32 million bpd expected by the Organization of the Petroleum Exporting Countries.”

Obviously the market is still looking to China

Market Watch Reported that China's gross domestic product expanded at a faster-than-expected rate of 9.5% in the April-June quarter from the year-ago period, signaling the economy was growing at a rapid clip despite several monetary tightening measures. The growth rate was higher than the 9.4% anticipated in a survey of economists by Dow Jones Newswires, although it was weaker than the 9.7% increase in the three-month period ended March 31. Data simultaneously released also showed June industrial production improved 15.1%, trouncing expectations for a 13.7% increase, while monthly retail sales jumped 17.7%, topping Fact Set Research estimates for a 17% rise.” The strong data again boosted hopes that perhaps China’ would not face a hard landing and perhaps their energy demand might not fall as hard as recent import and inflation data might suggest.

The Fed though held a surprise daring to talk about QE 3d, In the minutes The Fed played the two handed economist by saying “On the one hand, a few members noted that, depending on how economic conditions evolve, the Committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run. On the other hand, a few members viewed the increase in inflation risks as suggesting that economic conditions might well evolve in a way that would warrant the Committee taking steps to begin removing policy accommodation sooner than currently anticipated.

What is more you will have Federal Reserve Chairman Ben Bernanke on Capitol Hill that surely will be grilled on the how and whys of a possible QE 3D.

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.

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About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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