Ventura Commodities has come out with its special report on Crude oil. According to the research firm, Oil markets should continue to swing between tight supply concerns and slowing global demand as Crude prices are expected to move lower this unless Middle East tensions escalate. The oil market remains highly volatile and difficult to predict. The global economy continues to face significant challenges including the ongoing European financial crisis, and weakening conditions in China and the U.S. Resulting lower oil demand is expected to lead to growing global inventories of crude oil and petroleum products over the third quarter. As of late June, U.S., crude oil inventories were at their highest level since 1990. However, geopolitical events in oil producing countries always hold potential to cause prices to move higher. Against the backdrop of weakening global demand and growing inventories, such price response may be tempered.
The West Texas Intermediate (WTI) at Cushing, Oklahoma, averaged approximately US$94 per barrel in the second quarter of 2012, compared to about US$103 per barrel in the first quarter. Near the end of April, oil prices began to move lower in response to worsening global economic developments, particularly in Europe, China and the U.S. By late June, WTI had fallen below $80 per barrel, its lowest level since October 2011.
During September- December, WTI is expected to average about $90 per barrel. Inventory builds at the Cushing, Oklahoma hub and a lack of takeaway pipeline capacity continue to result in WTI prices in the area of US$10-15 below Brent, the international crude oil benchmark. Canadian crude oil priced off WTI faces further discounting due to a complex set of market factors including growing oil sands and U.S. supply (particularly from the Bakken shale), and pipeline constraints preventing increased supply from reaching refineries in traditional markets.
World economic growth in 2012:
The world economy still places a great amount of uncertainty upon future world energy consumption. Economic uncertainty in the US, EU and China is determining the fate of the world’s energy use not only for the rest of this year but also throughout next year Slower industrial production world-wide is pushing down the use of oil by a large percentage. A few variables will play a major role in world oil demand this winter, such as the weather and the health of the world economy.
MF revised down to 3.1% from 3.3% previously, reflecting slowing growth since the start of this year. The US expansion remains below potential at 2.2% in 2012 and 2.0% in 2013. Japan is increasingly feeling the weakness in exports and is seen expanding by 2.2% in 2012 and 1.1% in 2013. Meanwhile, the Euro-zone is expected to grow at 0.1% in 2013, following a contraction of 0.5% this year. The weakness in developed economies has been widely felt in the export-oriented emerging market economies. China is now forecast to expand by 7.6% in 2012 and 8.0% in the coming year. India is forecast to grow by 5.7% this year and 6.6% in 2013.
Debt Crisis
Europe’s debt crisis, which began in Greece three years ago, has cut the continent’s economic growth and energy demand. Spain is considering asking for help and Cyprus is in talks for a lifeline, following Ireland, Portugal and Spanish lenders. Meanwhile U.S. crude supplies output climbed to the highest level in more than 15 years and imports increased. Stockpiles probably rose 2.9 million barrels in the seven days ended Oct. 12,.Crude production rose 11,000 barrels a day to 6.52 million in the week ended Sept. 28, the most since December 1996.
Weak Auto Results
Given the current economic uncertainty, US auto sales growth is forecast to slow down to approximately 3%. Canadian vehicle sales are projected to increase by just a slight 1% during 2013, as a result of a spillover effect from the neighboring US economy. The European auto industry will continue to suffer from the region’s ailing economy next year. The forecast is looking at another stagnant or slightly declining year for the European car industry. US auto sales in 2013 are expected to slow down further to approximately 3%, reflecting lower expectations in the US and European economies. The recent Indian economic troubles resulted in lowering the country’s new vehicle registration forecast for 2013. This is now estimated at only 910%, compared with the previous 15% estimate.
Crude Oil & other Markets may remain uncertain over next 5 weeks:
Over the next five weeks, Crude Oil markets will be driven to wild swings by speculation over the outcome of the US Presidential election and Geo-political concerns. Crude Oil prices might remain weaker due to window dressing activities by the US before the presidential election & also dominated by uncertainties and concerns over Spain & further concerns on whether the Chinese economy is stabilizing or sliding. US Markets ended modestly higher as better-than-expected U.S. labor and service-sector data fueled optimism. The pace of growth in the vast U.S. services sector, which dominates the country’s economy, picked up in September, while private employers added more jobs last month than expected, Geo-political concerns include the still simmering dispute in the Middle East over a nuclear program in Iran that triggered tough sanctions from the United States and the European Union and plunged the Iranian rial to a record low. In additions, Turkey’s military hit targets inside Syria after mortar bomb fired from Syrian territory killed five Turkish civilians, marking the most serious cross-border escalation of the 18-month uprising in Syria.
India’s crude oil imports increased in August by 108 tb/d or 3% m-o-m and by 4% y-o-y, to average 3.4 mb/d. The increase came as a result of an expansion in the country’s refining capacity. India’s product imports dropped in August by 7 tb/d or 2.1% to average 339 tb/d, which was, however, a gain of 10.5% yo- y. This drop came on the back of lower imports of diesel and fuel oil, which declined in August by 46.2% and 11.1% respectively. With regard to India’s product exports, there were declines on a both monthly and an annual basis. They dropped by 4.2% from the previous month to average 12.2 mb/d, and they were 5.5% down from a year earlier. The monthly drop was due to lower exported volumes of petrol and fuel oil. Diesel was the only product which saw an increase in exports, at 5.1%, while exports of naphtha and fuel ended the month flat.
Forecast for 2012
Oil markets should continue to swing between tight supply concerns and slowing global demand as Crude prices are expected to move lower this unless Middle East tensions escalate. World oil demand for OPEC crude for 2012 is projected to average 30.1 mb/d, representing an upward revision of 0.2 mb/d, driven by the upward adjustment in demand combined with the downward revision in non-OPEC supply. The demand for OPEC crude in 2012 represents a decrease of 0.1 mb/d from the previous year. However, geopolitical events in oil producing countries always hold potential to cause prices to move higher against the backdrop of weakening global demand and growing inventories, such price response may be tempered. Thus WTI looks to remain in range $ 86 to $ 93/b in the coming month with presidential elections on the doors of US and decade old power transition in the communist china in early next is going to keep crude in downward pressure.
Source: Ventura Commodities