OPEC and IEA slash oil demand expectations

And the Oil Rolled

Full moon and markets did swoon only to come back in spectacular fashion. The oil market is getting twisted and turned yet the bottom line is that oil should have seen its lows for the year. Oil prices were plunging in the early hours as Greek debt and other European woes sunk the stock markets around the globe. Yet we had a late day rally in the stock market on reports of China buying Italian debt and that had oil roaring back despite the predictions of sinking demand.

In fact the first report from OPEC might have actually been bullish. Not because of what they said about demand but because a drop in OPEC's vision of demand should mean lower oil production in the future. Reuters News reported that OPEC cut its forecast for global oil demand growth next year because of a worsening economic outlook and said a disappointing economic performance in top consumer, the United States, could further weigh on fuel use. At the same time they had an optimistic assessment on Libyan oil output by predicting that they would return to full production capacity in 18 months. In other words, they are laying the ground work for a reduction in production or at least a removal of the over production that we have seen in recent months.

Overnight oil is still strong despite the fact that the International Energy Agency on Tuesday cut its forecast for oil demand in 2011 and 2012 because of the deteriorating global economy. Yet do not look for a price drop because the IEA says that Libyan supply problems are likely to continue. Dow Jones says, "The IEA's view contrasts with that of the Organization of Petroleum Exporting Countries, which Monday gave a more bearish outlook for oil prices and hinted that some of its members could manage this risk by reducing production. The two groups largely agree on the weakening of oil demand, but OPEC expects Libya to return to full pre-war crude production twice as quickly as the IEA. The IEA cut its oil demand estimate by 0.2 million barrels a day for 2011 and 0.4 million barrels a day for 2012, citing lower economic growth. However, the agency still forecasts oil demand to be marginally higher than current supply next year."

Of course why bother worrying about supply and demand when you can worry whether or not Europe is going to come apart at the seams. The oil market rebounded when the Financial Times reported that Italy is turning to cash-rich China in the hopes that Beijing will help rescue it from financial crisis by making “significant” purchases of Italian bonds and investments in strategic companies. This report turned global markets but it remains to be seen if it will still support us for the rest of today.

Yet what may support us is the approaching inventory reports. Due to the after effects of Hurricane Irene and Tropical Storm Lee we should see big draws in inventory.

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.

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.

 

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