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WASHINGTON (MNI) The following is the first part of excerpts from
the Energy Information Administrations July Short-Term Energy Outlook
published Wednesday:
Crude Oil and Liquid Fuels Overview.
EIAs view of the world oil market is largely unchanged from recent
Outlooks. EIA forecasts that world oil prices will rise slowly as an
expected renewal of global economic growth leads to higher world oil
demand and members of the Organization of the Petroleum Exporting
Countries (OPEC) continue their support of prices near current levels.
Global Crude Oil and Liquid Fuels Consumption.
EIA projects world oil consumption to grow by about 1.5 million
bbl/d in both 2010 and 2011, mostly unchanged from last months Outlook.
However, estimates for oil consumption in 2009 were revised upwards,
with these changes carried through the forecast period. Consequently,
the level of forecasted demand in 2010 and 2011 is higher than last
months Outlook. Countries outside of the Organization for Economic
Cooperation and Development (OECD) represent nearly all of the expected
growth in world oil consumption, led by China, Saudi Arabia, and Brazil
(World Liquid Fuels Consumption Chart).
Non-OPEC Supply.
EIA has revised its forecast of non-OPEC supply upwards from the
last Outlook, with non-OPEC supply now expected to increase by 0.6
million bbl/d in 2010 and decline by less than 0.1 million bbl/d in
2011. The forecast for oil production in Mexico is more optimistic than
last month. Data for the first half of the year have been higher than
expected, as recent decline rates at the Cantarell field have fallen and
the country has boosted output from other offshore areas. Nonetheless,
oil production in Mexico is still expected to fall by 0.1 million bbl/d
in 2010 and roughly 0.2 million bbl/d in 2011. Over the forecast
period, Brazil, the United States, and Azerbaijan should provide the
largest sources of non-OPEC supply growth.
OPEC Supply.
The 12 members of OPEC produced an estimated 29.4 million bbl/d of
crude oil in the second quarter of 2010. After remaining relatively
steady for the past four quarters, EIA expects OPEC crude oil production
to rise slightly through 2011 to accommodate increasing world oil
consumption and maintain the organizations market objectives. Even
with the increase in crude oil production, OPEC surplus capacity should
remain over 5 million bbl/d in 2010 and 2011, versus 4.3 million bbl/d
in 2009 and 1.5 million bbl/d in 2008. OPEC production of non-crude
petroleum liquids, which are not subject to OPEC production targets, are
expected to increase by 0.6 million bbl/d in 2010 and 0.7 million bbl/d
in 2011.
OECD Petroleum Inventories.
Commercial oil inventories held in the OECD stood at about 2.7
billion barrels at the end of the first quarter of 2010, equivalent to
about 57 days of forward cover, and roughly 67 million barrels more than
the 5-year average for the corresponding time of year. The level of OECD
oil inventories is expected to decline through the forecast period,
though days-forward-cover should remain high due to falling OECD oil
consumption.
Crude Oil Prices.
WTI crude oil spot prices averaged $75.34 per barrel in June 2010
($1.60 per barrel above the prior months average), close to the $76 per
barrel projected in the forecast in last months Outlook. EIA projects
WTI prices will average about $79 per barrel over the second half of
this year and rise to $84 by the end of next year.
Energy price forecasts are highly uncertain, as history has shown
(Energy Price Volatility and Forecast Uncertainty). WTI futures for
September 2010 delivery for the 5-day period ending July 1 averaged $77
per barrel, and implied volatility averaged 35 percent. This made the
lower and upper limits of the 95-percent confidence interval $60 and $98
per barrel, respectively.
Last year at this time, WTI for September 2009 delivery averaged
$70 per barrel, and implied volatility averaged 44 percent, rendering
the limits of the 95-percent confidence interval $52 and $95 per barrel.
U.S. Crude Oil and Liquid Fuels
U.S. Liquid Fuels Consumption.
U.S. liquid fuels consumption is beginning to show signs of
recovery after having fallen by 810,000 bbl/d in 2009, the fourth
consecutive annual decline. The year-over-year decline in total liquid
fuels consumption slowed to 20,000 bbl/d in the first quarter of 2010.
Total consumption for the second quarter, however, rose by 500,000 bbl/d
compared with the same period last year. For the year as a whole,
projected total liquid fuels consumption grows by 200,000 bbl/d in 2010
and by 170,000 bbl/d in 2011 as all of the major petroleum products
register consumption growth in each of those years.
U.S. Liquid Fuels Supply and Imports.
Projected domestic crude oil
Europe
European shares have opened higher after falling to their lowest close in nearly six weeks yesterday. There was no lead from Wall Street, which was closed for the Independence Day holiday. Bund futures fell to a session low on Tuesday in very thin trade as European equities made gains, curbing safe haven flows into German debt.
A contraction in German construction activity intensified in June as new orders dipped across the sector. The Markit construction index which is based on a survey of 200 construction companies fell to a seasonally adjusted 46.7 from 48.6 in May, staying below the 50 level, which separates growth from contraction for the second month running.
A measure of the residential sector showed its contraction also intensifying, with its sub-index registering 47.5 after 49.0 in May.
Commodities
Oil
Oil extended losses on Tuesday to four-week lows near $71 mainly due to a series of negative economic indicators over the past week which has lead to a lack of confidence about growth in energy use. Global services growth slowed in June, data showed on Monday, a further sign just days after weak manufacturing data that emerging and developed economies are set to cool off through the second half of the year.
The health of European banks is still in focus with continuing fears of double-dip recession also added to risk aversion in the market sending the dollar higher on Tuesday. Therefore commodities denominated in the U.S. currency are more expensive for buyers in the Asian market.
Gold
After recent drops in the price of the Gold, Tuesday saw a slight rise spurred by buying from jewelers in Asia. A firmer U.S. dollar with volatile stock markets has prompted speculators to sell to cover losses. Its anticipated dealers expected jewelers to snap up the metal at lower levels. Gold added 35 cents to $1,207.30 an ounce by 0535 GMT, having hit a high around $1,209. Gold slipped had fallen 3.4% last week, off the record high of $1,264.90 hit in June, as risk aversion linked to fears about the European sovereign debt crisis waned. The SNBs gold holdings at market value went from 39.1bn to 45bn showing an increase of 5.9bn.
US markets return later in the day, with little event-risk noted on the calendar to keep wider volatility contained.
Currency News
EUR/USD: Recovers From drop overnight Official buying sparked the overnight EUR/USD bounce, but only after downside stops were taken out. Drop below 1.2500 triggered various stops en-route to the 1.2479 intraday low. However, Asian sovereign names were soon spotted on the bid and this helped return the price to the comfort of the 1.25s. Option dealers are again quick to highlight the 1.2500 intraday strikes, which could offer the EUR support should there be a dip later today. In terms of resistance today supply is still touted towards the 1.26-area to keep the immediate topside limited.
GBP/USD: Strong start to Tuesday Cable up at levels just above 1.5200 level seen yesterday. Thin late Monday action saw the Pound slip again, this time to 1.5080 but as soon as the Asian market got going the Pound was driven back up through intraday buy stops at 1.5150 and on to early Tuesday London highs around 1.5192.
Broad based Dollar weakness at play while UK domestic news has been thin on the ground. A new MPC member confirmed by the Chancellors office and press chatter about a UK government contingency plan should BP collapse. The BP story, in the Times, will no doubt heighten speculation that the oil giant could be broken up or taken over.
GBP/USD continues to meet a head wind in the 1.5200 area but the underlying trend is with the Pound and it look like only a drop under 1.50 will scupper the bulls party. For this session key support is in the 1.5080 area but we also expect to see profit taking should 1.5140 give out. On the day a 1.5150 to 1.5220 range expected with upside risk
USD/JPY: Back Up To Asian Levels, Offers Still at 88.00- USD/JPY fell from an early high of 87.78 to as low as 87.42 this morning in Asia, partially on dovish comments from Dallas Fed president Fisher, a renowned hawk. Mr. Fisher said it was much too early to begin hiking interest rates and that the Fed could go either way in its debt purchases programs depending on the economy, moving towards a sell-off of accumulated assets or renewed purchases. This and JPY cross weakness were behind the
USD/JPY move lower. Bidding interest did resurface from the 87.40-50 area and held firm despite talk of stops sub-87.40. The market later pushed back up as the JPY crosses went bid alongside the Nikkei. USD/JPY has since recorded a fresh session high of 87.84. Offering interest remains ahead of 88.00 following the failure at 88.01 yesterday. Some stops are seen above 88.10 however and could come into focus if JPY crosses remain upbeat. USD/JPY currently trades 87.85/88.
AUD/USD:-Bounces After Neutral RBA Statement The RBA left the cash rate at 4.5% as expected and delivered a neutral statement thereafter. The RBA noted that international growth was uneven with very strong growth in Asia and Latin America compensating for uneven growth in the advanced countries. The RBA also noted that European budgetary constraint is making growth prospects for next year uncertain. The RBA also noted tightness in the funding markets but not on the scale seen in 2008.
The RBA remained relatively upbeat towards the domestic economy noting the strong terms of trade and the likelihood business investment will increase. The statement suggests the RBA will keep rates on hold unless there are significant changes in the global and domestic economies.
The AUD/USD has bounced from 0.8370 to 0.8390 after the RBA Statement didnt sound a particularly cautious note regarding the global economy and certainly did not signal a dovish shift in bias. The AUD/USD trades 0.8485/90.
Stock Market
Asia
Asian stocks reversed course and inched up on Tuesday taking heart from gains in the Chinese market led by property and bank stocks, while the Australian dollar dribbled higher after the central bank sounded cautiously optimistic on the economic outlook. Stock markets cheered gains in Shanghai, the worlds second-worst performer after Athens. The Shanghai market has lost 27 percent since the start of the year, after Beijing introduced a range of policies to cool the real estate fever.
Europe
European shares have opened higher after falling to their lowest close in nearly six weeks yesterday. There was no lead from Wall Street, which was closed for the Independence Day holiday. Bund futures fell to a session low on Tuesday in very thin trade as European equities made gains, curbing safe haven flows into German debt.
A contraction in German construction activity intensified in June as new orders dipped across the sector. The Markit construction index which is based on a survey of 200 construction companies fell to a seasonally adjusted 46.7 from 48.6 in May, staying below the 50 level, which separates growth
http://www.youtube.com/watch?v=_nRLiZrkHEY&feature=player_embedded#!
Niall Ferguson of Harvard University spoke with Bloomberg Television on the subject of bond markets and the threat of a speculative bond attack against the United States.
0:35 Bond vigilantes are similar to those who were shorting invest banks a few years ago. They will keep climbing the quality of countries, similar to how they did with banks.
1:35 There is no example in history of any country growing out of this sort of debt position, except for Britain in the early 1800s, which had empire and industrial revolution on its side.
2:10 What is worrying is that there is no inflation, which is the easy way out of this sort of financial situation. Default now seems the only escape, and the U.S. may choose that path with unfunded liabilities like Social Security.
3:00 Nothing would scare the market more than if the government followed Paul Krugmans call for more stimulus.
The fate of the financial reform legislation in the Senate apparently depends on whether it contains a tax increase. The conferrees hastily re-convened to remove one tax objected to by Senator Brown. Okay. That was a good move. But lets not forget a couple of basics: (1) the imposition of massive new regulations on the banking and financial system will raise costs that may not be called taxes, but will have a similar effect. (2) the incidence of that cost-tax probably wont be what was intended. Banks, like other businesses, will likely pass most of the additional cost onto their customers.
http://taxesandbudget-blog.ncpa.org/
Solid buying has been seen on dips with real-money players steady buyers this afternoon. Still, EUR/USD trades with a heavy tone as Wall Street trades in the red after a 20 point rally in the S&P and a 175 point rally in the Dow disappear.
Bids are seen in the 1.2605/15 region with small stops below 1.2600. mainly around 1.2590. Major resistance at 1.2675 and 1.5230 (in Cable) have both survived sever tests from below today.
I guess I'll continue to buy on dips till 153 and then sell from there.