While remaining fragile in the medium-term, commodities recovered from losses made in the Asian session as helped by gains in European stocks. We believe any gains in the near-term would be short-lived as the underlying economic fundamentals continue to deteriorate. The ECB said that it will lend $575M to 2 banks in a 7-day USD funding operation. Use of the operation, the first time since August 18, signaled banks are getting more reluctant to lend money to each other and intensified concerns in the region's money market conditions.

The IEA and the OPEC also released their latest global oil demand forecasts. Given intensifying concerns over the macroeconomic outlook, both agencies revised lower their estimates for 2011 and 2012. The IEA projected oil demand will rise +1.36% to 89.3M bpd this year and then +1.57% to 90.7M bpd in 2012, compared with previous forecasts of 89.5M bpd and +91.1M bpd respectively. The revisions were anticipated in the midst of the economic turmoil. Moreover, IEA's forecasts have been the more optimistic among the 3 major agencies. The IEA also trimmed non-OPEC supply due to outages in the Middle East and China. Non-OPEC output is expected to reach 52.8M bpd (August: 53.0M bpd) in 2011 before rising to 53.8M bpd in 2012 (August: 54.0M bpd).

OPEC forecast global oil demand will grow by +1.27% to 88.0M bpd this year and then by +1.48% to 89.3M bpd in 2012, compared with corresponding estimates of 88.1M bpd and 89.4M bpd made last month. As non-OPEC and OPEC NGL outputs are expected to remain unchanged, the call on OPEC was reduced for both years.

Both agencies addressed the Libya issue as the civil is coming to an end. The IEA raised the Libyan crude production capacity to 350K-400K bpd by the end of 2011 and then to 1.1M bpd by 4Q12 (Libya's pre-war production was estimated to be 1.6M bpd). The OPEC appeared more optimistic on the resumption of Libya's production capacities. The cartel expected Libyan production will reach 1M bpd within the next 6 months and 'the restoration of Libyan oil production to full capacity in less than a year-and-a-half appears to be realistic'.

The DOE/EIA will report on weekly oil inventories in the NY session. The industry-sponsored API estimated that crude stockpile plunged -5.05 mmb to 344.16 mmb in the week ended September 9. Gasoline and distillate storages however, rose +2.76 mmb and +0.07 mmb respectively.

Weekly change in inventory as of 09/09/11 ChangeConsensusPrevious
Crude oil  -3.00 mmb-3.96 mmb
Gasoline  -0.50 mmb+0.20 mmb
Distillate  +1.00mmb+0.71 mmb

Comparison between API and EIA reports:

API (Sep 9) EIA (Sep 9)
ActualInventoryPreviousForecast (using API's inventory level)Inventory
Crude oil-5.05 mmb344.16 mmb-2.97 mmb-8.93 mmb344 mmb
Gasoline+2.76 mmb212.69 mmb-0.87 mmb

+3.85 mmb

213 mmb
Distillate+0.07 mmb157.13 mmb+3.95 mmb+0.36 mmb157 mmb

API collects stockpile information on a voluntary basis from operators of refineries. Data from the API and DOE have moved in the same direction 71% of the time over the past 52 weeks

Source: Bloomberg, API, EIA