Global oil demand forecast downgraded for 2011 and 2012

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Oil continued to recover...basis WTI as unwinding of the Brent/WTI spread accelerated yesterday. So far overnight the spread has recovered by about $0.50/bbl basis the Nov spread which is trading around the $20/bbl mark. The Oct spread goes off the board tomorrow and it is also stronger on the day. The two oil markers continue to be driven by different drivers. WTI is being driven mostly by the ups and downs of the main financial markets...equities and the US dollar while Brent is being driven more by the current fundamentals...Libya, Nigeria and North Sea. With some level of Libyan oil getting closer to flowing along with the North Sea nearing the end of its maintenance season the supply loss premium that has been built into the price of Brent has begun to unwind and is likely to continue to unwind over the next month or so. The spread is now trading over $5/bbl below the all time record peak level it hit about a week ago. As I warned yesterday it is a resilient spread and the downside correction that seems to be underway can change on a dime at any time. Right now if the correction continues the next support level of the Nov spread is around the $18/bbl level.

Although the massive selling has subsided in Europe for the moment the same risks that existed to start the week remain. European leaders are still scrambling to come up with a lasting solution to the sovereign debt issues in Greece and the rest of the southern EU member countries. China and the rest of the BRIC nations have thrown their hats into the ring and said that they would discuss ways to help Europe at their upcoming meeting next week. China went on to signal that they would potentially invest in Europe if those countries needing the investment would take all of the necessary measures to control the debt problems...not unlike comments we have heard over the months from the IMF and other EU member countries.

Austerity measure continue to be in the forefront of the EU countries with the debt problems with another debt restructuring likely for Greece along with the ECB also likely to change its monetary policy and quickly begin to lower interest rates (after starting to increase them just months ago). Europe continues to be the main price driver for all global risk asset markets and will likely continue to impact all values for the near term. The market is looking for a sign that a lasting solution is at hand. Until a solution emerges the market will continue to remain engulfed in a cloud of uncertainty and any rallies will likely only be short covering rallies and not the beginning of a new up leg.

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