It’s that kind of scene now, however, when equity markets seem to be hoping for some kind of QE3 announcement at Jackson Hole on Friday even though a) it’s not an FOMC meeting, so Ben Bernanke can’t make a policy announcement, and b) things will need to get worse before purchasing Treasuries is back on the table.
Meanwhile the bears in commodities, as elsewhere, are getting cranky. Olivier Jakob had a go at the bulls on Monday, as we noted, and today Citigroup’s Ed Morse and team – who are revising their 2011 estimates downwards.
For 2011, we previously targeted a base case price of $92/bbl for West Texas Intermediate. We are now reducing that call down to$89/bbl and are now targeting $106/bbl for ICE Brent (down from $109/bbl). This is more of an adjustment to changing expectations than a change for the medium term, where our 2012 forecast called for $80 WTI and $100 Brent.
Morse is highly critical of the major energy agency forecasts, saying their small downward revisions to demand growth last week were too weak:
Two weeks ago, the International Energy Agency (IEA), Organization of the Petroleum Exporting Countries (OPEC) and the United States Energy InformationAdministration (EIA) all released updated balances and projections through 2012. Much to our chagrin (and to that of our clients, perhaps), it appears these multilateral institutions that are supposed to set the standard for oil market participants decided to let politics get the better of policy. Both OPEC and EIA estimate 2011 global consumption growth at nearly 1.4-m b/d. In our view, these assumptions are far too optimistic. All of these institutions failed to adequately assess the impact of demand destruction in light of macro headwinds faced by the OECD and China. We assume global real GDP growth to slip to 3% in 2011 and inch up to 3.25% in 2012; for the US, we see an anemic 2% through 2011 and 2012, which is significantly lower than our outlook earlier this year. Sovereign risk factors in Europe and what is shaping up to be a less-soft landing in China should also curb demand growth for crude products. This is unfolding at a time of roaring OPEC production (net of Libya) and a crude oil glut in the North American mid-continent.
However they also note the contradictory signals, with signs of supply tightness too – Saudi Arabia, remember, is producing at 30-year record levels. And Libya is not likely to return to its pre-Arab Spring capacity in any hurry. So some foresee the call on Opec crude will exceed supply. Such as JBC Energy:
Taking a closer look at the oil supply-demand balance during 2011, the call on OPEC crude estimate of the three major agencies now averages 30.84 million b/d, which compares to an average estimate on OPEC crude oil production of 29.97 million b/d in July. Accordingly, the figures released this week imply that a noticeable global implied stockdraw is still likely to materialise although its impact should be mitigated to some extent by the IEA emergency stock release. In addition, assuming that at least some of the current panic in the market might have been caused by an actual slowdown in global economic activity, world oil demand might turn out to be lower than currently anticipated, which could further reduce the implied global stockdraw during the July-September period.
In a way, everyone wins, however: if JBC is right, we could see the spectre of demand destruction.
If only monetary policy were so simple, eh?
China, nothing to see here – FT Alphaville