Gold edged lower in European session as the spike to a record high on Monday has triggered profit-taking. In the energy complex, WTI crude oil prices moved sideways with a soft tone while Brent crude recovered modestly after sliding over the past 2 days. While fighting continues, oil traders view that the situation in the MENA region has been somehow contained for now. With no breaking news on geopolitical tensions, investors have shifted their focus to macroeconomic and industry data.
In the Short-term Energy Report for March, the DOE/EIA raised its forecast for the average cost of crude oil to refiners to $105/bbl for 2011, up +14/bbl from February's projection as unrest in the Middle East and North Africa region has sent oil prices to the highest level since September 2008. The agency also revised up its forecasts for WTI crude oil prices to $102/bbl and $105/bbl in 2011 and 2012 respectively. The DOE/EIA only raised its estimates on global oil demand modestly, anticipating world consumption to rise +1.74% y/y to 88.2M bpd in 2011, followed by a +1.90% increase to 89.88M bpd in 2012.
The DOE/EIA said that the situation in Libya and the MENA region remains uncertain. Apart from the continued unrest in producing countries and its potential impact on supply, the oil market is also exposed to unknowns including 'decisions by key OPEC member countries regarding their production response to the global recovery in oil demand and recent supply losses; the rate of economic recovery, both domestically and globally; fiscal issues facing national and sub-national governments; and China's efforts to address concerns regarding its growth and inflation rates'.
As we talked earlier in the week about reduction of OPEC's spare capacity as member countries have to substitute the lost crude in Libya, the agency in its monthly report revised lower its forecasts on spare capacity. The agency projected that OPEC's spare capacity will fall from an average 4.4M bpd in 2010 to 4.1M bpd in 2011, followed by a further decline to 3.1M bpd in 2012. In the previous report, the corresponding forecasts were 4.65M bpd, 4.72M bpd and 4.18M bpd respectively.
On the dataflow, US' wholesale inventory probably increased +1% in January, same growth as the previous month. At the RBNZ meeting to be held at 2000 GMT today, policymaker will probably cut the OCR by +25 bps to 2.75% in order to restore consumer confidence which has been shaken after the earthquake in Queensland.