The International Energy Agency in its June monthly report said world oil demand will rise more quickly this year than previously thought. The IEA lifted its forecast for 2007 growth in world oil demand to 1.7 million barrels per day or two per cent, up 200,000 bpd from the previous forecast.
The increase in the IEA’s demand forecast reflects revisions to 2005 data and higher-than-expected demand in countries including Nigeria, Indonesia, Singapore, Venezuela and former Yugoslavia.
While inventories rose by 9.9 million barrels in April, the IEA warned the trend may reverse should the 12-member Opec maintain production close to current rates. If the group pumps around 30.3 million bpd — or 200,000 bpd more than the IEA estimates they produced in May — stocks could drop by one million to 1.5 million bpd in the third quarter, the report said.
Opec, source of more than a third of the world’s oil, agreed last year to lower output by 1.7 million bpd and officials from the group have consistently said crude supply is enough. The 10 members covered by the deals, all except Iraq and new member Angola, pumped 26.5 million bpd in May, the IEA said, 1.2 million bpd less than in September 2006 — the month used as a baseline for the supply cuts.
The IEA cut its estimate of 2007 non-Opec supply by 110,000 bpd to 50.2 million bpd, citing lower than expected output from the OECD and African producers such as Equatorial Guinea.
The rise in demand and drop in supply will raise the need for Opec oil in 2007 to between 31 million bpd and 32 million bpd, it said, up to 500,000 bpd more than previously expected.
Opec insists supply is enough and says a strain on oil refineries in the United States and other consumer countries, as well as violence in Africa’s top exporter Nigeria, have pushed prices higher.
In the London market oil prices slid to below $69 on June 12. Prices had earlier rebounded when the IEA raised its 2007 oil demand forecast and said in its monthly report that Opec had tightened the taps too far.
Financial markets have been shaken by prospects that rising inflation may force tighter monetary policy, and ultimately dampen economic growth and oil demand. “The IEA report keeps to its alarmist trend of pushing for an Opec supply increase but US oil still faces a comfortable stocks situation and the main North Sea blends will be 300,000 barrels per day higher in July due to the end of maintenance,” said Olivier Jakob, an analyst at Swiss-base Petromatix.
A few days earlier prices had edged up because of the cyclone which powered through the Middle Eastern region. Prices also found support from further outages in Nigeria, which is the world’s sixth largest oil producer and the biggest on the African continent. There was also concerns about a tight US gasoline market and supply disruption in Nigeria.
On June 14, world oil prices rose, breaching $71 in the London market, after data showed no increase in US gasoline stockpiles a week earlier.
Nickel/Copper
Nickel, the metal used in the manufacture of stainless steel has fallen in recent days, after the London Metal Exchange changed lending rules to free up more metal. On June 12, at the London Metal Exchange, nickel fell by more than 6 per cent.
Nickel for delivery in three months on the London Metal Exchange (LME) fell by 6.4 per cent to hit $39,800 a tonne, its lowest since February 23. It recovered slightly to end the official open outcry session at $40,700.
“Nickel inventories are up again and cancelled warrants are down, removing some price support,” analyst Michael Widmer at Calyon said. Cancelled warrants represent metal earmarked for delivery from LME-registered warehouses to users. Nickel stocks rose by 42 tonnes to 8,922, with over two days of global consumption or 8.478 tonnes available to the market.
The nickel market, with prices hitting $51,800 a tonne in May and rising some 40 per cent this year, has been characterized by extreme tightness with low stocks in LME warehouses and strong stainless steel production in China. The LME amended its lending rules, lowering the limit at which holders of dominant long positions are required to lend to the market.
“They are lowering the lending rules because they want to make more metal available to the market,” analyst Micheel Widmer at Calyon said. Tow-thirds of nickel output goes to produce stainless steel and due to bolstering demand it has been difficult to get hold of the metal making steel harder and more durable.
Meanwhile, on June 8, three month copper prices sank to $7,202 a tone on the London Metal Exchange, from $7,420 a week earlier.
“There is downward pressure on copper emanating from Chinese import figures, while upward pressure comes from possible strikes at Collahuasi and Grupo Mexicon,” analyst Michael Widmer at Calyon said. China imported 220,561 tonnes of copper, including semi-finished producets, in May, down about a quarter from the high levels seen in March and April.
In Chile, workers at Collahuasi, which can produce around 400,000 tonnes of copper a year, said they planned demonstrations later this week to demand an improved labour contract proposal from mine managers.
In Mexico, workers at the country’s largest copper mine have backed a strike call by their union, bringing a threatened stoppage a step closer at nine Grupo Mexico operations later.
Gold
With a firmer dollar, gold slipped 2.2 per cent to a three month low on June 8, as a firmer dollar and a general sell off across asset markets prompted bullion speculators to trim positions.
Gold fell to as low as $645.15 an ounce, the lowest since March 15. Any geopolitical uncertainty will send gold shooting upward as it retains much of its traditional safe haven status.
Traders kept a watch on developments in South Africa, the world’s largest gold producer, and said any strike by miners might help the bullion market. Unions from the South African mining industry, which generates billions in export revenue, have said they may join in to support the massive public servants’ strike that started last week demanding higher wages.
Analysts said producer de-hedging would continue this year and provide support to the gold market in the long run. Hedging allows producers to lock in profits for future output, but it can backfire if metals prices rise above the hedged price.
Meanwhile, silver prices also fell. Silver was quick to follow gold lower, notes Jame Moore, analyst at specialist website The Bullion Desk.com, adding the weaker base metal prices were providing additional pressure.
Platinum and palladium prices have also fallen. On the London Platinum and Palladium Market, platinum fell to $1,288 an ounce at the late fixing on June 8, from $1,290 a week earlier. Palladium recoiled to $369 an ounce, from $371.
