Oil Constrained Below 80 While Gold Advanced above 1120

By IBTimes Staff Reporter | November 12 2009 7:45 AM

Although there were quite a number of energy-specific reports released yesterday, they failed to move oil price much as it was US and Canada holiday Wednesday. Price traded within a narrow range and bounced back whenever it touched the 80 level. The benchmark contract settled at 79.28, up +0.25%, for the day.

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The US Energy Department (EIA) revised slightly upward its forecasts on global energy demand for 2009 and 2010. World oil consumption is expected to drop -1.9% to 84.14M bpd, compared with October's projection of 83.67M bpd, in 2009. In 2010, consumption will increase +1.2% to 85.4M bpd. This was also higher than previous forecast of 84.77M bpd. According to the EIA, 'China and other Asian countries outside of the OECD continue to lead a global economic and oil market turnaround'.

Concerning oil price, the EIA forecast WTI price to average at 81/bbl by December 2010, based on assumptions that US real GDP grows by +1.9% yoy in 2010 and world oil-consumption-weighted real GDP grows by +2.6%. In the previous report, it forecast WTI price to average at 75/bbl by December 2010 based on the assumption that GDP should grow by +1.8% in 2010.

At the same time, the OPEC also upgraded the global oil demand outlook. In its November report, the cartel controlling 40% of the world's oil supply anticipated oil demand will decline -1.6% yoy to 84.31M bpd in 2009 before recovering to 85.07M bpd in 2010. In October, the OPEC had expected a plunged to 84.31M bpd in 2009 before rebounding to 84.93M bpd in the next year. The upgrades were driven by OPEC's upward revisions on world economic growth. The organization forecast the world economy to grow by +2.9% (October's projection: +2.7%) in 2010 after a contraction of -1.1% (October's projection: -1.2%) in 2009.

China released the preliminary trade report for October. Net oil imports rose +1.3% mom to 18.98 million tons in October, the second largest on record. This further confirmed recent robust demand data in China.

Apart from holidays in US and Canada, weakening in Tropical Depression Ida also suppressed gains in oil prices. After the landfall, oil facilities resumed operations. According to industry experts, 43% of oil and 28% of natural gas production capacities in the Gulf were idled because of the Storm.

Sentiment and news flows remained favorable for gold. After a day of consolidation, the yellow metal resumed recent uptrend and advanced to as high as 1119.1 yesterday. The benchmark contract eventually settled at 1114.6, up +1.1%. Today in Asia, gold extends strength above 1120.

The dollar index plummeted to as low as 74.86 before rebounding yesterday. Although the index settled slightly higher eventually, the overall tone remains bearish and gold should be able to rise high on USD's weakness.

According to the ECB's statement, less than a metric ton of gold was settled by the Eurosystem banks during the week ended November 6. Moreover, since renewal of the CBGA II on September 27, sales of gold have been very low. Limited gold sales by European central banks and increasing purchases by Asian ones should change central banks from a net gold seller to a net buyer.