Crude Oil Prices Firm on Upgrades in Demand Outlook

By Roger Baettig | September 13 2012 10:07 AM

Crude oil prices edge higher in European session as the market awaits the FOMC meeting. Heightened speculations that the Fed would announce QE3 have lifted sentiment, sending commodity prices higher. Meanwhile, upward revisions of global oil demand by oil agencies also lent supports to prices. Ahead of the FOMC meeting, RBNZ and SNB meetings were held. Both central banks left the policy rates unchanged but delivered more dovish outlooks.

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The DOE/EIA in the latest Short-Term Energy Report raised its global oil demand forecasts for 2012 and 2013. The agency anticipated demand to increase to 89.09 M bpd this year, up +0.83M bpd from 2011 and +0.26 M bpd from August's estimate. For 2013, demand is expected to increase to 90.1M bpd, up +1.01M bpd from a year ago and +0.40M bpd from the projection in August. While the IEA also raised its demand outlook, the upward revisions were modest due to its higher forecasts in the past. The IEA anticipated demand to increase to 89.80 M bpd this year, up +0.80M bpd from 2011 and +0.20 M bpd from August's estimate. For 2013, demand is expected to increase to 90.6M bpd, up another +0.80M bpd from a year ago and +0.10M bpd from the projection in August. The IEA stated that "the pace of oil demand growth is expected to remain relatively steady over the next 18 months, with annual gains of just 0.8 million barrels per day in both 2012 and 2013". Meanwhile, the modest growth rate "reflects the combined effects of sluggish global economic activity, historically elevated oil prices and global improvements in energy efficiency".

In the Asian session today, the September RBNZ statement was largely unchanged from July's. The central bank left the OCR unchanged at 2.5% but pushed backward the timing of the first rate hike to end of 2013, from mid-2013. The SNB meeting this month was also unsurprising as policymakers decided to leave the 3-month Libor target at 0%. The central bank continued to pledge that it is committed to buying foreign currency in unlimited quantities in order to keep the minimum exchange rate unchanged at CHF 1.20 per euro. Concerning the inflation outlook, the SNB revised lower its growth and inflation forecasts. With inflation at negative territory this year before recovering to mildly positive territory in 2013, there is virtually no inflationary pressure in the country in the near to medium term.

On the dataflow, US' initial jobless claims probably climbed to 370K in the week ended September 8, up +1.37% from a month ago. At the FOMC meeting, the Fed is expected to make adjustments in its monetary stance, economic assessment and statement language. We expect the Fed to delay the first rate hike to late 2015 and lower economic projections. We also expect announcement of QE3 at this meeting.