In light of economic slowdown and heightening global uncertainties, oil agencies revised modestly their outlooks for oil demand growth. The OPEC lowered the demand estimates for both 2011 and 2012, the IEA trimmed this year's outlook but raised next year's and the EIA raised demand from 2010-2012 but the size of growth in 2011 was lowered as a result.

All 3 agencies warned of the great uncertainty in global economic outlook. The IEA stated that 'concerns over debt levels in Europe and the US, and signs of slowing economic growth in China and India have spooked the market and raised fears in some quarters of a double-dip recession'. The OPEC cited 'dark clouds over the economy are already impacting the market's direction...The potential for a consequent deterioration in market stability requires higher vigilance and close monitoring of developments over the coming months'. Together with reduction of the price forecasts, the DOE/EIA said that 'there is significant downside risk for oil prices if economic and financial market concerns become more widespread or take hold'.

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While China will remain the biggest growth driver for demand, its increasing risks of economic slowdown have aroused concerns. In July, the country's trade surplus jumped to USD 31.5B, up +41.4% and +10.3% on monthly and annual basis respectively, in July. This biggest surplus in over 2 years exceeded market expectations as exports grew +20.4% y/y, compared with consensus of +17%, to USD 175.1B. Imports rose +22.9% y/y to 143.6B during the month. While remaining a net importer of crude oil, the shipment fell to 19.2M metric tons, or 4.6M bpd, in July, down -1.0% from a month ago but up +2.12% from the same period last year. While the third quarter is a typical low season in China due to refinery plant maintenance, investors would be cautious to a drop as it might signal a slowdown in demand.

In the US, the industry-sponsored API reported that crude oil inventory declined -6.24 mmb to 348.65 mmb in the week ended August5. Gasoline and distillate also dropped -1.01 mmb and -0.56 mmb respectively. The official report from the DOE/EIA may show crude stockpile gained +1.35 mmb while gasoline and distillate storages climbed +0.90 mmb and +1.00 mmb repsetively.

On the macro front, the lack of important data so far in the day sent financial markets higher. The latest BOE inflation report unveiled that UK's economic outlook has worsened and policymakers retained the view that elevation inflation will return to target level in the medium-term.

Weekly change in inventory as of 05/08/11 ChangeConsensusPrevious
Crude oil  +1.35 mmb+0.95 mmb
Gasoline  +0.90 mmb+1.70 mmb
Distillate  +1.00 mmb+0.41 mmb

Comparison between API and EIA reports:

      

  API (Aug 05)   EIA (Aug 05) 
 ActualInventoryPrevious Forecast (using API's inventory level)Inventory
Crude oil-6.24 mmb348.65 mmb-3.31 mmb -6.33 mmb349 mmb
Gasoline-1.01 mmb211.22 mmb+2.55 mmb -3.96 mmb211 mmb
Distillate-0.56 mmb150.16 mmb+1.40 mmb -2.10 mmb150 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