Demand Oulook by OPEC and IEA Broadly Unchanged as Decline in Europe is Offset by Gains in China

Similar to projections in May, OPEC in June forecasts world oil demand will rise +1.12% y/y to 85.37M bpd in 2010. Major growth drivers are China, Middle East and 'other Asia' while OECD economies will show modest contraction. Note that the OPEC revises down demand forecasts for 'Western Europe' and 'other European countries', expecting annual contractions of -3.34% (May: -3.01%) and -0.67% (May: +0.02%) respectively. According to the cartel, 'debt in several European economies and continued application of rigorous state tax policies on oil are causing an additional sharp decline in European oil consumption. The European Big Four oil demand contracted strongly led by Germany and the UK'.

On the supply side, non-OPEC production will increase +1.25% y/y to 51.78M bpd in 2010, around +1.1M bpd above May's projection of 51.67M bpd. Therefore, it reduces demand for OPEC's crude to 28.76M bpd this year.

IEA revised up world oil demand forecasts for 2010 in June after downgrading it last month. The agency currently anticipates demand will surge to 86.4M bpd this year, up +1.89% from 2009 and +0.06M bpd higher than May's projection. With non-OPEC and OPEC NGL supplies increasing, call on OPEC was mildly lowered to 28.7M bpd, compared with 28.73M bpd estimated in May.

Production by OPEC-11 dipped -0.16M bpd to 26.61M bpd in May, translating into compliance level of 58% (April: 55%) during the month. The reading contrasted with OPEC's estimate of 52.7%. Indeed, this is the third monthly decline in compliance level according to the cartel.

Gold continues to edge lower but remains supported above 1220. As driven by strong China trade data and broadly encouraging economic indicators in US, Australia, Korea, etc, risk appetite gets boosted and investors seek higher returns from stocks and other risk-sensitive assets including energies and high-yield currencies. The euro strengthens for a third day against the dollar and regains the 1.2 level as press said the head of China's national pension fund showed confidence that the single currency will survive Europe's debt crisis.

Silver plunges in tandem with the yellow metal. After losing -1.56% to 18.18 at close yesterday, the benchmark contract for silver weakens further to below 18 today.