Commodities remained under pressure in European session. While the selloff yesterday had attracted bargain hunting, investors' concerns about possible global economic slowdown in light of rising oil prices and weak macro indicators limited risk appetite. The IEA's monthly report today showed demand upgrades from both 2010 and 2011. However, without adequate supply in the pipeline, surging oil prices would risk a double-dip recession in the economy.
At the June report, the IEA forecast that world crude consumption will increase +1.48% y/y, or +1.3M bpd, to 89.3M bpd in 2011. This is around +0.1M bpd higher that the May projection. On the supply side, estimate of non-OPEC production is reduced to 53.3M bpd from May's projection of 53.7M bpd due to disruptions in the North Sea, America and Yemen. Therefore, demand for OPEC's crude is expected to rise to an averaged 30.1M bpd in the year, up from 29.7M bpd projected in May.
The IEA reiterated that 'there is a clear need for the organization [OPEC] to boost supply'. There are 'damaging implications' to global economy if Saudi Arabia and some other producers fail to do so. Concerning disruption in Libya, the IEA believed production can only recover gradually after the ongoing civil war but will not be able to return to pre-war level of around 1.6M bpd until 2014.
On the macro front, the SNB left the 3-month Libor target rate at 0.25%. Policymakers are increasingly concerned about economic developments. As mentioned in the accompanying statement, economic outlook has 'dampened somewhat in the past few weeks' and 'downside risks predominate'. These risks include 'debt problems in the euro area periphery', 'fiscal consolidation measures' in 'various parts of the world' due to 'high deficits', 'recent commodity price increase' which 'weighs on global economic growth and poses upside risks to inflation'. Domestically, the main risks are 'the effects of the strong Swiss franc on the export industry' and 'the danger of overheating in the real estate sector'.
The central bank also published a new set of growth and inflation forecasts. GDP growth will be 'around +2.0%', unchanged from March's projection that economy will 'advance by approximately +2.0%'. Concerning inflation, forecast for 2011 is revised higher to +0.9% from +0.8% due to higher oil and import prices. However, those for 2012 and 2013 were taken down to +1.0% (from +1.1%) and +1.7% (from +2.0%) respectively amid 'appreciation of the Swiss franc and the slightly slower development of international growth'. Apparently, policymakers do not feel the need to raise interest rates urgently given current subdued price levels.
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