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Weekly UpdatesThe working week on Aug. 14 ended with September WTI closing at $67.47/b, down from $70.52/b on Aug. 13, because of a rise of the US dollar. Brent on Aug. 14 closed at more than $72/b, with the discount for paper WTI reflecting weaker US demand and high American crude oil and distillate stocks. Paper Brent on Aug. 13 fell $0.94 to $73.79.
Paper WTI may reach $95/b by early 2010 after rising to a seven-week high in the first week of August, according to technical analysis by Auerbach Grayson, a brokerage in New York. Paper WTI is expected to reach $83/b, which corresponds with the 38.2% Fibonacci retracement of the range generated by the September contract's high of $145.96/b on July 14, 2008, and the low of $44.28 touched on Feb. 18. The next target of $95 would be a 50% retracement.
Richard Ross of Auerbach Grayson says: "The [paper] oil market is in a strong position for a further move to the upside. There was a 70% pullback from the peak last summer to the trough". September WTI on Aug. 6 fell 3 cents to $71.94/b. It topped $70 on Aug. 3 for the first time since July 1, which was a break-out from a symmetrical triangle formation.
Ross says: "We were able to break out on the upside on Monday (Aug. 3) and, more significantly, we broke out and held those gains. This shows the ability of the [paper] oil market, along with equities, to shrug off bad news and focus on the good news. This is a good sign for technicians". The sequence was identified by Italian mathematician Leonardo Fibonacci in the 13th century. The ratio between the numbers, about 0.618, is known as the golden mean, and is used by technical analysts to find levels of resistance and support.
Bank of America's Merrill Lynch says paper WTI will set a new high for 2009 as increasing money supply in emerging economies boosts prices. Interest rate cuts and plans to defuse the credit crisis have led to the biggest increase in money supply among the largest oil consumers since 1998. Merrill Lynch says a 1% increase in money supply translates into a 1% rise in crude oil demand. It adds: "This disconnect between money supply and oil supply growth will againcreate a situation of too much money chasing too few barrels of [paper] oil".
OPEC's ministerial meeting on Sept. 9 is to decide on whether to keep the current output level unchanged, or drop it further as demanded by price hawks Algeria, Iran and Venezuela. But Saudi Arabia, which has the last word, is waiting to see how OECD oil stocks will be drawn down or filled in the coming weeks. These stocks in recent months equalled 62.5 days of forward demand, far above the 52-53 days Riyadh would like to see. But it would be difficult for OPEC to justify a further cut in output as the winter is approaching and distillate stocks will go down.
Iran's OPEC Governor Muhammad-Ali Khatibi predicts a revival of the global economy would push paper WTI to $80/b by January. Khatibi wants OPEC to cut production for the fourth quarter.
OPEC on Aug. 11 left its 2009 world demand forecast unchanged, projecting a fall of 1.65m b/d compared to 2008. It said 2010 demand was to show a 500,000 b/d rise. Its report said 2009 world demand would be 83.91m b/d. It would rise to 84.41m b/d in 2010, up 0.07m b/d more than its July forecast. World demand for OPEC crude fell 2.3m b/d to 28.4m b/d. It would fall 0.5m b/d to 28m b/d in 2010. This exceeded its July estimate. It said 2010 OECD demand would continue to fall.
Only in the Middle East, China and Latin America would demand keep rising in 2009. The OPEC report said due to uncertainties about recovery from the global recession, as well as ample stocks, the market remained fundamentally weak. It said stronger than expected production levels in Russia and anticipated output growth in the US, Brazil, Azerbaijan, and Kazakhstan will see non-OPEC supplies rising 300,000 b/d in 2009 and 400,000 b/d in 2010, to a total of 51.4m b/d. OPEC cut 4.2m b/d from its output from September to end-February, as prices collapsed. Its production averaged 28.7m b/d in July, up 160,000 b/d from June. OPEC's basket price averaged $64.59/b in July.
The IEA on Aug. 12 said world demand and output this year would average 83.9m b/d, some 190,000 b/d higher than it had projected in July, and rising to 85.3m b/d (70,000 b/d above its July forecast). It said 2010's rise in demand would almost exclusively be driven by Asia, while demand in the West would be roughly level with 2009. It put July supplies up 570,000 b/d to 85.1m b/d. It said 2009 non-OPEC output would rise 160,000 b/d to 51m b/d. In 2010, non-OPEC output would rise 440,000 b/d to 51.4m b/d. It saw OPEC output at 27.7m b/d this year and 27.8m b/d in 2010.
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