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G20 leaders released a communiqué after the summit in South Korea, pledging to achieve 'strong, sustainable and balanced growth in a collaborative and coordinated way'. However, financial ministers' refusal to join the US in pressuring China to appreciate RMB signals currency and trade disputes will persist for some time. More importantly, G-20 leaders spent a considerable time discussing Europe's debt problems, intensifying worries that the EU may need to bail out some of the peripheral countries.
Financial markets tumbled as Europe's debt crisis worsened and the prospect for Chinese rate hike has increased. The dollar rebounded against major currencies. In the commodity sector, the benchmark contract for WTI crude oil dived to as low as 85.48 in European session. Gold slumped amid broad-based selloffs in commodities with the benchmark contract plunged to a 1-week low of 1377.3.
Despite short-term volatility, oil agencies remained confident in the oil market. OPEC raised its global oil demand forecasts for 2010 and 2011 as consumptions in advanced countries should improve amid economic recovery. According to the cartel holding 40% to the world's total oil output, World oil demand will reach 85.8M bpd in 2010, up +1.3M bpd from 2009 and +0.2M bpd from October's forecast. Consumption in the OECD has outpaced expectations as various stimulus plans have driven up economic activities. The forecast for world oil demand in 2011 has been revised up to 86.9M bpd, up +1.1M bpd from 2010 and +0.3M bpd from previous projection. The improved outlook for OECD demand is a key factor behind this adjustment.
While demand outlooks were higher, productions from non-OPEC countries, and OPEC NGL and non-conventional remained largely unchanged from October's forecasts. Therefore, demands for OPEC's supply were revised up to 28.8M bpd and 29.2M bpd for 2010 and 2011 respectively.
In its latest report, the International Energy Agency also upgraded the global oil demand forecasts to 87.3M bpd in 2010, up +2.6M bpd from 2009 and +0.4M bpd from October's projection, as both OECD and non-OECD posted stronger-than expected demand readings in 2010. Outlook for 2011 was revised higher to 88.5M bpd, up +1.2M bpd from 2009 and +0.3M bpd from previous projections. Supplies will continue to come mainly from non-OPEC countries but calls for OPEC increased in both this and next years as growths in non-OPEC supplies do not match with demand growths.
Although monetary tightening may curb commodity consumptions, other measures from China may help boost oil prices. The Chinese government's control on power supply has led factories to using their own power generations. According to the National Bureau of Statistics, China's oil processing in October rose +12% y/y 8.8 M bpd. Meanwhile, there are increasing expectations that China may return to a net importer of diesel after being a net exporter since October 2008. Indeed, China's net exports of diesel fell for a second consecutive month to 55K bpd in September.
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