**With crude oil prices falling to $72 levels, concerns about what direction oil prices would take in 2011 has surfaced. Bank of America-Merrill Lynch (BofAML) which had forecasted $88.50 per barrel for the second half of 2011, now believes that there are some downside risks to their outlook, if their country economists lower the GDP growth expectations from around the world.
BofAML economists have reduced thier US GDP expectations from 3.3% to 2.6% in 2011.Following a robust increase in oil demand in the past year, the stimulus-driven rebound is giving way to slower growth. More worryingly, OECD oil inventories look high as demand is set to soften, BofAML said in its Global Energy Weekly. BofAML economists still are upbeat about emerging markets growth, oil demand growth in OECD will likely average 50,000 barrels per day in 2011 as Japanese consumption contracts. "With 100 thousand b/d of growth coming from OECD North America, a softer US economy would not change our OECD numbers materially at this point. But if softer expectations for the US economy impact BofA Merrill Lynch’s GDP growth forecasts for key EMs, our current non-OECD oil demand growth expectations of 1.5 million b/d would look a bit stretched.Yet, modest OPEC cuts can easily bring market into balance," BofAML analysis said. A double-dip recession is unlikely and global economic growth may not collapse abruptly. OPEC may be able to manage prices effectively in the current $70-$80 barrel price band with only modest output cuts, BofAML said in its analysis. BofAML said that it had revised the 2010 expections in May on the back of substantially reduced demand expectations for Europe. More recently, figures released by the Department of Energy suggest that petroleum demand in the United States could start to soften. In particular, gasoline demand has just averaged 140 thousand b/d or 1.5% above last year adding downward pressure on RBOB cracks even as the driving season kicked in during the past month. But the recent deceleration in demand for middle distillates in the United States is perhaps more concerning. Demand for middle distillates dropped by 234 thousand b/d week on week, pushing the 4 week moving average demand level to a mere 370 thousand b/d above last year, BofAML analysis noted. *European demand in doldurms* In the present scenario, European demand contineus to be in doldrums, while Canada, Mexico growth is helping OECD North America demand picture.BofAML expects regional demand to increase by 224 thousand b/d in 2010 compared to last year. After a yearly contraction of 850 thousand b/d in 2009 and a reduction of 7 thousand b/d in 2008, BofAML expects OECD Europe total oil demand falling by 273 thousand b/d in 2010. The recovery in oil demand in OECD economies has come from sectors that have exposure to emerging market growth such as LPG and Naptha while certain markets like gasoline and distillates have barely turned positive, BofAML notes. Emerging markets will continue to drive global oil consumption over the coming quartes and years, the analysis added. Industrial acitivty remains firm with many countries reporting healthy growth rates on the back of robust intra-regional trade growth. Most crucially, some reasonably large economies in the region like India or Indonesia continue to see accelerating growth and increased oil demand. Global air freight rebounded strongly in recent months led by increased Asian demand with North America posting a close second and the European region lagging substantially. Chinese economy hasalready started to decelerate towards an annualized GDP growth rate of 9%, down from a breakneck pace of 11.9% at the beginning of the year. Equally, the more recent PMI surveys in China are also suggesting a deceleration over the months ahead, while the Conference Board indicator recently lowered its index of Chinese leading economic indicators for April. For instance, residual fuel oil stocks in OECD Europe are in the middle of their 5-year average, while other products like gasoline and distillates in OECD Asia also show a balanced picture. *Middle distillate stocks in US* Middle distillate stocks in USA at 159 mn barrels is 24% above the 5-year average, despite numerous attempts, middle distillate stocks in the OECD regions have failed to draw to any significant degree. Meanwhile, in Europe, distillate stocks are sitting well above last year just as European demand is poised to slow over the coming months. As a result, distillate prices have come down substantially in recent days, with ICE gasoil cracks dropping from $13.0/bbl on 21 June to $10.85/bbl in recent days, BofAML analysis noted. "However, we view a double-dip as a rather unlikely event and thus still see limited downside risks to oil prices below $65/bbl," BofAML analysis noted. -- Regards Hardik Shah -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en.
