Crude Remains Supported as IEA Raised Demand Forecasts

Crude oil price remains strong in European morning. The International Energy Agency (IEA) raised its forecast on oil demand, as indicated in the September report. The October contract hovers around 72 as investors await further details on US inventories.

As driven by stronger-than-expected US demand and rapid growth in China, the IEA revised up its demand forecasts for 2009 and 2010, to 84.4M bpd and 85.7 M bpd respectively. There were compared with June’s projections of 83.94 M bpd for 2009 and 85.25M bpd for 2010.

According to the agency, ‘there is growing evidence that the global economy may be finally stabilizing, with industrial destocking coming to an end, coupled with the effects of large scale government intervention… Oil demand in US, China and other Asia appears to be running stronger than preliminary estimates suggested’. That said IEA is not entirely confident on the market outlook as ‘considerable uncertainty regarding the prospects of a sustained US economic recovery’.

USD recovers after plummeting for several days. Higher-yield currencies such as Australian dollar and New Zealand dollar have lost momentum after days of rallies. Against the euro and Swiss Franc, the greenback also pares losses.

The BOE has just announced to keep its policy rate unchanged at 0.5% and the asset purchase program at 175B pounds. The British pound jumps to 1.6598 from 1.6528 against the dollar after the announcement. Before the meeting, the market also anticipated that the BOE may reduce the deposit rate so as to encourage lending but the speculations were in vain.

In Asian morning, RBNZ announced to keep its OCR unchanged as 2.5%. At the same time, the central bank once again stated its easing stance that interest rate will stay ‘at or below the current level through until the latter part of 2010’. Despite the dovish stance, RBNZ did acknowledge recent improving economic development and raised GDP growth forecasts for New Zealand and its trading partners.

Gold weakens further to 985 on profit taking. Recent rally in gold has been driven by renewed capital inflows in investment. Jewelry demand contributes the majority of gold demand. However, global economic downturn and decline in disposable income as spurred by poor job market has dampened jewelry consumption. For gold price’s surge to sustain, investment demand has to stay strong.