Commodities | Jul 19 2010
By Chris Shaw
Oil demand forecasts according to the three main players in the market – the International Energy Agency (IEA), OPEC and the US Energy Information Administration (EIA), all indicate a modest to steady pace of growth in 2011.
Developing economies will drive this growth, as all three groups expect oil demand from developed economies to show only a small gain in 2011, if not in decline slightly.
In the view of Commonwealth Bank chief commodity strategist David Moore the risk to this view is to the upside, largely given the potential for requirements for OPEC crude to increase through next year and into 2012.
Such an increase would cut into OPEC's surplus capacity, while Moore also suggests OPEC are likely to be reluctant to quickly increase supply targets in response to any growth in oil demand.
This supports his expectation for the oil price to track higher through 2011, his forecasts calling for prices to end the September quarter this year at around US$75 per barrel before rising to US$77 per barrel by year's end. In 2011 Moore is forecasting quarterly oil prices of US$78 per barrel in March, US$82 per barrel in June, US$86 per barrel in September and US$90 per barrel by the end of 2011.
Turning to base metals, figures published last week by the International Lead and Zinc Study Group showed the zinc market was in surplus for the first five months of 2010 by 209,000 tonnes. Commonwealth Bank expects this surplus will temper zinc price performance over the rest of the year.
In the view of Standard Bank, the outlook is not so clear as zinc prices appear to be in something of a mini-battle at present, as turnover has been relatively good in recent sessions yet the price has not moved as much as the other metals.
With open interest drifting lower a previous large short position in the metal appears to be diminishing, even though the bank suggests the market feels like it is being purposely smothered at present.
The International Nickel Study Group also updated on that market, noting nickel was in a surplus of 4,800 tonnes in May while posting only a small overall deficit for the January to May period. This was something of a surprise, CBA having expected nickel would have been in a deficit for May. The latest data leads the bank to suggest the nickel market will likely be in surplus in 2011.
According to Belgium's KBC, the nickel market outlook for next year is far from clear, as while Russia's Norilsk Nickel expects demand for both nickel and palladium to fall over the remainder of this year, Norilsk has yet to get a clear feel for demand in 2011.
Before that KBS suggests nickel's deficit this year may come in larger than the 40,000 tonnes expected, a reflection of both stronger than expected Chinese demand and ongoing supply disruptions.
With respect to copper, Standard Bank notes Chinese output jumped to 422,000 tonnes in June, up 26% in year-on-year terms to a new record level. MFGlobal suggests the fact Chinese copper output was a record in June implies demand remains fairly robust even as domestic output is increasing.
Sustaining this rate of output will be a challenge in Standard Bank's view, as it notes a number of smelter shutdowns are expected over the next few months. The bank remains bullish with respect to Chinese copper demand and expects this to continue to support the price of the metal.
MFGlobal is also positive on Chinese demand, noting major European producer Aurubis expects high levels of Chinese copper imports through the second half of 2010.
From a technical perspective, MF Global suggests current support and resistance for copper stand at US$6,300 and US$7,050 per tonne respectively, while for aluminium support is at US$1,925 per tonne and resistance at US$2,050 per tonne.
For zinc, MFGlobal suggests support stands at US$1,720 per tonne and resistance at US$1,970 per tonne, while the respective levels for lead at US$1,700 per tonne and US$1,880 per tonne. In nickel the group suggests support is at US$18,000 per tonne and resistance at US$20,500 per tonne.