Global oil demand has been running strong ahead of a 2nd round of QE (quantitative easing) likely to be announced by the Fed this week. Higher demand on the back of optimism for improved industrial and transport consumption, oil prices are expected to head north in the coming year.
According to a latest report from the Bank of America Marill Lynch Global Research (BoAML) with oil demand on a robust upward trend, winter weather around the corner and more QE ahead, it believes global oil demand to hit a new record in 2011.
OECD countries posted nearly 980 k b/d of yearly demand growth in 3Q, compared to 1.4 mn b/d for non-OECD. Regionally, Asia led the recovery, but demand for oil in the US also improved cyclically.
Against our expectations, the sovereign debt crisis in May barely impacted oil demand in OECD Europe. More broadly, these reported numbers are consistent with a range of indicators such as air traffic or EM car sales. However, despite the demand surge, OPEC has failed to add more oil to the market. As a result, global petroleum inventories are now starting to draw, the report noted.
Further it was noted that if OPEC fails to increase production substantially over the next few months, a scenario implied by current freight rates, oil inventories will inevitably draw at a fast pace.
As oil stocks draw, near-dated oil contracts could move up faster than contracts further out in the curve. In particular, Brent time spreads may be more impacted by the tightening of supply and demand conditions.
In a tightening market, spot prices could rise.
Thus, according to the research report, Brent could go above USD 90 per barrel before the end of the year should the Fed announce an asset purchase program of USD 500 billion or more.
In our view, the general perception that QE has been fully priced into commodity markets is misleading. We believe that oil is only starting to reflect a weak USD against G10, leaving room for oil price rises as EM (Emerging Markets) currencies strengthen against the USD, the report said.
Moreover, other effects of QE such as increased capital flows to EMs, the wealth effect created by rising asset values, and lower refinancing costs will further impact oil demand and prices. As a result, we maintain our view that oil prices will hit USD 100 per barrel in 2011, in noted.
In a similar fashion, OECD European oil demand has improved after the sovereign debt crisis in May, led by diesel. While Germany has been the clear leader in OECD Europe's demand recovery with an uplift of 152 thousand bpd or 6.3% YoY in 3Q10, other regions have joined along.
Even the lackluster Spanish economy reported yearly consumption gains for some products such as gasoil and jet/kerosene in August. Net, OECD European oil demand was up 133 thousand bpd in 3Q10, a rather stellar result in the face of a very steep sovereign debt scare in May and June.
While European and US oil demand has performed very well against the analyst expectations, overall demand growth continues to be led by Asia. Demand in OECD Asia Pacific was up 157 thousand bpd in 3Q10, while oil consumption in non-OECD probably amounted to 41.6 million bpd in the same quarter, which is 1.4 million bpd, or 3.6%, higher YoY.
China was the undisputed leader in terms of demand growth among the EMs, and will likely clock about 800 thousand bpd of growth this year. Naturally, the robust trend for Chinese oil demand is reflected in record crude oil import numbers, which hit 5.7 million bpd in September.
Further, the report also noted that air traffic has picked up since the lows of early 2009. Regions like Asia have mostly led the recovery, but all key economic areas have posted a significant increase in RPKs in the last few months.
Perhaps more importantly, yearly growth rates for air traffic are accelerating, not abating. This is a positive signal for the broader economy, as it suggests that globalization of goods and services markets remains alive and kicking despite fears of protectionism.
Another positive indicator is car sales in Emerging Markets, which have continued to grow at a very healthy rate. As the broad based recovery in demand continued in recent months, OPEC has chosen to stay on the sidelines.
The most recent data for September suggests that OPEC 11 production stood at 26.8 million bpd, a similar level to previous months.
According to a latest report from the Bank of America Marill Lynch Global Research (BoAML) with oil demand on a robust upward trend, winter weather around the corner and more QE ahead, it believes global oil demand to hit a new record in 2011.
OECD countries posted nearly 980 k b/d of yearly demand growth in 3Q, compared to 1.4 mn b/d for non-OECD. Regionally, Asia led the recovery, but demand for oil in the US also improved cyclically.
Against our expectations, the sovereign debt crisis in May barely impacted oil demand in OECD Europe. More broadly, these reported numbers are consistent with a range of indicators such as air traffic or EM car sales. However, despite the demand surge, OPEC has failed to add more oil to the market. As a result, global petroleum inventories are now starting to draw, the report noted.
Further it was noted that if OPEC fails to increase production substantially over the next few months, a scenario implied by current freight rates, oil inventories will inevitably draw at a fast pace.
As oil stocks draw, near-dated oil contracts could move up faster than contracts further out in the curve. In particular, Brent time spreads may be more impacted by the tightening of supply and demand conditions.
In a tightening market, spot prices could rise.
Thus, according to the research report, Brent could go above USD 90 per barrel before the end of the year should the Fed announce an asset purchase program of USD 500 billion or more.
In our view, the general perception that QE has been fully priced into commodity markets is misleading. We believe that oil is only starting to reflect a weak USD against G10, leaving room for oil price rises as EM (Emerging Markets) currencies strengthen against the USD, the report said.
Moreover, other effects of QE such as increased capital flows to EMs, the wealth effect created by rising asset values, and lower refinancing costs will further impact oil demand and prices. As a result, we maintain our view that oil prices will hit USD 100 per barrel in 2011, in noted.
In a similar fashion, OECD European oil demand has improved after the sovereign debt crisis in May, led by diesel. While Germany has been the clear leader in OECD Europe's demand recovery with an uplift of 152 thousand bpd or 6.3% YoY in 3Q10, other regions have joined along.
Even the lackluster Spanish economy reported yearly consumption gains for some products such as gasoil and jet/kerosene in August. Net, OECD European oil demand was up 133 thousand bpd in 3Q10, a rather stellar result in the face of a very steep sovereign debt scare in May and June.
While European and US oil demand has performed very well against the analyst expectations, overall demand growth continues to be led by Asia. Demand in OECD Asia Pacific was up 157 thousand bpd in 3Q10, while oil consumption in non-OECD probably amounted to 41.6 million bpd in the same quarter, which is 1.4 million bpd, or 3.6%, higher YoY.
China was the undisputed leader in terms of demand growth among the EMs, and will likely clock about 800 thousand bpd of growth this year. Naturally, the robust trend for Chinese oil demand is reflected in record crude oil import numbers, which hit 5.7 million bpd in September.
Further, the report also noted that air traffic has picked up since the lows of early 2009. Regions like Asia have mostly led the recovery, but all key economic areas have posted a significant increase in RPKs in the last few months.
Perhaps more importantly, yearly growth rates for air traffic are accelerating, not abating. This is a positive signal for the broader economy, as it suggests that globalization of goods and services markets remains alive and kicking despite fears of protectionism.
Another positive indicator is car sales in Emerging Markets, which have continued to grow at a very healthy rate. As the broad based recovery in demand continued in recent months, OPEC has chosen to stay on the sidelines.
The most recent data for September suggests that OPEC 11 production stood at 26.8 million bpd, a similar level to previous months.
