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					                                                 Observation                                    TD Economics
                                                                                                   www.td.com/economics

                                                 February 3, 2010


            HIGHLIGHTS                        CRUDE OIL MARKET STILL FACING MASSIVE GLUT
 •	 Non-OECD	 oil	 demand	 grew	
                                               The Great Recession had quite an impact on the crude oil market, with demand
    at	 a	 healthy	 5.1%	 clip	 in	 Q4;	
    OECD	demand	still	in	the	red	          and prices plunging in late-2008 and early-2009. And even though the global
    at	-3.4%                               recovery got underway during the second half of last year, this blow to the crude
 •	 Growth	 in	 oil	 production	           oil market is going to continue to be felt for some time, as the fundamental picture
    picked	 up	 steam	 in	 Q4,	 out-       remains quite weak.
    pacing	consumption                         The recovery in the global economy has been led by emerging markets, and
 •	 Global	 inventories	 remain	           the story is similar for the crude oil market. Demand from non-OECD countries
    elevated	at	95	days	supply             – China in particular – picked up steam in the fourth quarter, growing at a 5.1%
                                           (Y/Y) clip. Meanwhile, any economic improvement seen in OECD economies
                                           has yet to translate into a significant rebound in crude oil demand, as consumption
                                           in developed nations was down 3.4% (Y/Y) during the final quarter of the year.
                                           But, while still in the red, this is a marked improvement from the 6.1% (Y/Y)
                                           contraction seen during the second quarter. Put together, total world demand for
                                           crude oil ended 2009 slightly (0.3%) above year-earlier levels. But compared to
                                           2007 levels, which is a more accurate ‘pre-recession’ benchmark, global demand
                                           finished the year down by about 2%.
                                               With consumption still quite weak, there is plenty of oil to go around. Nonethe-
                                           less, as prices rose closer to the US$70 per barrel mark, OPEC compliance rates
                                           began to slip, and ended the year at only 49%. So after curbing output by 7-8%
                                           during the first three quarters of 2009, OPEC production was down by only 2.6%
                                           in the final three months of the year. And with non-OPEC growth accelerating
                                           to 4.9% during the same period – with increased production seen in Brazil, U.S.,
                                           Canada, and the Former Soviet Union – total global output increased by 1.6% in
                                           the fourth quarter, and was 1.3 million barrels per day greater than demand. In
                                           fact, after showing great improvement through most of 2009, the supply-demand
                                           balance shot up dramatically during the last two months of the year. This doesn’t

                                                            GLOBAL	CRUDE	OIL	MARKET	2009
                                                                      Q1        Q2          Q3                          Q4
                                                                                 Y/Y % change
                                            PRODUCTION GROWTH
                                            OPEC                     -8.3      -7.2        -7.6                         -2.6
                                            Non-OPEC                  1.9       1.9         3.9                          4.9
                                            World                    -2.6      -2.1        -1.2                          1.6
Dina	Cover,	Economist
	 416-982-2555                              DEMAND GROWTH
                                            OECD                                -4.9         -6.1                -3.5   -3.4
	 mailto:dina.cover@td.com
                                            Non-OECD                             0.2          2.3                 3.0    5.1
                                            World                               -2.7         -2.3                -0.6    0.3

                                                                                                   Million b/d
                                            SUPPLY-DEMAND	BALANCE               0.1          0.0                 0.2    1.3


                                            Source: Energy Intelligence Group
                                                                  Observation                                 TD Economics
                                                                 February 3, 2010                                                                2
                                                                                                              www.td.com/economics


bode well for the already elevated global inventories, which
at 95 days supply, are well-ahead of the 5-year average of                          GLOBAL	OIL	INVENTORIES:	DAYS	SUPPLY
86 days supply.                                                                  Number of days
                                                                            98                                                              98
    So while demand for crude oil is improving alongside the                97                                                              97
economic recovery, supply has been rising at a faster pace,                 96                                                              96
                                                                            95                                                              95
preventing the market from working down inventories and                     94
                                                                                      2009
                                                                                                                                            94
                                                                                                      2008
moving back into a more balanced position. What’s more,                     93                                                              93
OPEC spare capacity jumped from 1.5 million barrels per                     92                                                              92
                                                                            91                                                              91
day to 4.4 million barrels per day in 2009, and is expected                 90                                   2007                       90
to continue to increase through 2011 to nearly 6 million                    89                                                              89

barrels per day as new capacity comes online. Hence, even                   88                                                              88
                                                                            87                                                              87
once the rebound in crude oil demand is in full swing, the                  86               5-year average                                 86
supply overhang, combined with growing excess capacity,                     85                                                              85
                                                                                 Jan Feb Mar Apr May Jun       Jul   Aug Sept Oct Nov Dec
will limit any upward pressure on prices. The U.S. dollar,
however, is likely to have a positive influence on prices                        Source: Energy Intelligence Group
this year, as we expect it to depreciate against the euro and
a basket of currencies through most of 2010 (USD/EUR to                  barrel this year. Next year, once global economic activity
be 1.45 at year-end). As a result, we expect oil prices to               picks up steam, oil prices are likely to head a little higher,
remain in a relatively tight range, averaging about US$80 per            averaging US$85 per barrel.




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