World GDP remains on course this year and next despite financial market turbulence initiated by deepening woes in the US housing sector.
However, speculation that interest rates would be lowered to support growth have not materialised in the immediate aftermath as inflation worries remain the predominant concern of the Fed and the ECB both of which left interest rates on hold, with the ECB signaling a rise in September.
US growth has been revised down to 1.9% this year on signs of a possible slowdown in the second half of the year as the unemployment rate crept up to 4.6% and the rate of expansion in services sector disappointed expectations in July. World growth remains unchanged for 2007 at 5% from last month but is 0.1 percentage points higher for 2008 also at 5%, on upward revisions in Japan, China, India and Russia.
World oil demand growth in 2007 is forecast at 1.3 mb/d or 1.5%, slightly higher than the estimate for last month, reflecting additional oil needs for Japanese power plants.
As a result of anticipated weak oil demand in other OECD countries, world oil demand for the third quarter is forecast to grow by 1.5 mb/d y-o-y to average 85.7 mb/d.
In July, world oil demand followed a typical summer seasonality trend, with agricultural, transport, and power plant fuels seeing the highest consumption. July oil demand grew the most in the USA, China, Middle East, and Other Asia especially India.
In 2008, world oil demand is forecast to grow by 1.3 mb/d in 2008 to average 87.1 mb/d, broadly unchanged from the last MOMR. Non-OECD will account for 1.1 mb/d or 79% of total world oil demand growth in 2008, while OECD growth will be mostly come from North America.
Non-OPEC oil supply in 2007 is expected to increase 0.9 mb/d over the previous year, representing a net downward revision of 85,000 b/d versus the last assessment.
The Forward Structure
The forward curve narrowed in the near months while the structure in the farther months changed.
Nymex WTI 1st/2nd month spread averaged 5¢/b in contango in July, while the 1st/6th, 1st/12th and 1st/18th month spreads flipped in backwardation at 59¢, 96¢ and $1.26/b respectively, the first time since November 2004.
Although weekly crude oil stocks averaged 350,000 mb, which was some 2.3 mb above last month and 15 mb above last year’s level, the recent four-week consecutive draw, which accumulated to 9.5 mb, sent fear over tight supply.
Prompt refinery procurement is anticipated to boost run rates to meet seasonal fuel demand after recent planned and unexpected outages. Nevertheless, crude oil inventory depletion is foreseen behind the recent backwardation structure, especially at Cushing, Oklahoma.
OPEC warned on Tuesday that a slowing U.S. economy and the subprime mortgage crisis could cut oil consumption this year.A the WSJ's Energy Roundup Roshanak Taghavi has this quote:
The more bearish economic trend which has materialized in recent weeks could negatively impact demand growth in the second half of the year," OPEC said in its monthly report.
But some analysts contend oil supplies will have trouble keeping up with demand growth later this year unless OPEC increases production when it meets next month.
“We seem to be having a market here that is responding primarily to events going on in global stock exchanges and global equity markets,” said Peter Beutel, president of trading advisory Cameron Hanover in New Canaan, Conn. “The threat of hurricanes is another factor I would list as a close second in this market.”
Oil is still in backwardation with the front-month at $72.34 and Dec. 2010 at $68.50.
Natural gas was up 24.6 cents at $7.04.