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The Commodities Report

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Stock markets rebound supports base metals

Thu, Oct 30 2008, 10:51 GMT
by KBC Market Research Desk

KBC Bank

Headlines

• Expectation that rate cuts may strengthen demand sends crude up

• Weakening greenback increases interest in gold

Brent and Distillates

Crude oil prices have reversed their trend and directed up as threats of further OPEC massive quota cuts increased worries ahead of the winter season and due to expectations that central banks cuts may improve demand.

Crude oil stocks in U.S. rose last week by 0.5mln.bbl, but below the consensus forecast for a 1.4mln.bbl increase. Total US demand averaged 18.88mln.b/d over the past four weeks, down 7.8 % compared with the same period a year ago. Gasoline stocks fell 1.5mlm.bbl, confounding the consensus forecast for an increase of 1.2mln.bbl. However, the demand remains weak, averaging 8.93mln.b/d over the past four weeks, down 3.4 % compared with the same period a year ago.

Without extra investment to raise production, the natural annual rate of crude output decline may reach 9.1 %, the International Energy Agency should say in its annual report, the World Energy Outlook, a draft of which has been published by the Financial Times. The IEA forecasts that China, India and other developing countries’ demand will require investments of 360mld.$ each year until 2030. Even with investment, the annual rate of output may decline by 6.4 %. IEA expects oil consumption in 2030 to reach 106.4 mln.b/d, down from last year’s forecast of 116.3 mln b/d. However, IEA complains that the report was published withoutany permission and contains figures from a draft a few weeks old. The official report should be published November 12.

Merrill Lynch cut its U.S. crude oil price forecast for the 4q08 to 78 $/b from 107 $/b. Demand for physical commodities with U.S. oil consumption contracts at the sharpest rate since 1980, the bank says.

A vice-president of Russian LUKOIL said on Wednesday the Russian oil industry's future hinges on close cooperation with OPEC and said the country could cut production to help OPEC prop up prices. The comment by Leonid Fedun at a conference in Moscow came as a big surprise after his boss, the head of LUKOIL Vagit Alekperov, said earlier this month Russia should not join OPEC as it would damage its oil industry. Mr Fedun added that Russia could afford to cut production and exports by 300 to 400 kb/d to help OPEC, and said executives from private Russian oil companies could attend OPEC's next December’s meeting in Algeria.

Venezuela would back an additional OPEC production cut, possibly of 1mln.b/d, if it were necessary to stabilize crude oil prices, President Hugo Chavez said it on Tuesday.

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Published on  Thu, Oct 30 2008, 10:57 GMT