| ENERGY Crude Oil – Crude prices were lifted last week on upbeat demand forecasts but dropped off towards the end as downbeat consumer sentiment data clouded the economic recovery outlook. The US Energy Information Administration last week said the global economic recovery will push world oil demand sharply higher in 2010, as it increased its demand growth forecast for a second consecutive month. The US government's top energy forecasting agency increased its estimate for world petroleum demand growth this year by 270,000 barrels per day to 1.5 million bpd, pushing global fuel use to an average 85.51 million bpd. Last month the agency raised its 2010 demand growth forecast by 120,000 barrels per day for an increase in oil demand of 1.2 million barrels per day in 2010. Most of the higher oil demand will occur in developing countries, particularly in Asia and the Middle East. The agency said it now expects the world economy will grow 3.4 percent this year, more than the 2.7 percent it forecast last month. OPEC echoed this sentiment as it too sees a rise in demand, increasing the need for crude from the 12-member group which meets to set policy this week. Demand will rise by 880,000 barrels per day (bpd) in 2010 to average 85.24 million bpd, the Organisation of the Petroleum Exporting Countries said in a monthly report. The growth rate is up 70,000 bpd from the previous forecast. OPEC's report also pointed to a further rise in production from its members in defiance of agreed output limits, but it said the surplus would give a buffer later in the year when demand is expected to accelerate further. The IEA said on Friday that global oil processing will rise by 50,000 barrels per day (bpd) to 72.6 million in the second quarter compared with January-March due partly to higher run rates in China and Asia. A large portion of demand growth this year is set to be in Asia. The IEA revised its world demand forecast up by 70,000 to 86.57 million bpd because of strong growth in emerging markets. US crude oil inventories logged their sixth straight rise last week on lower refinery runs while higher demand and reduced production left gasoline stocks down unexpectedly, government data on Wednesday showed. Commercial crude oil stockpiles were up by 1.4 million barrels at 343 million barrels in the week to March 5, reported the US Energy Information Administration (EIA). That was shy of analysts' average forecast for a rise of 1.9 million barrels. The nation's gasoline stockpiles showed a surprise decrease of 2.9 million barrels to 229 million barrels, EIA said. Analysts had forecast a modest rise of 200,000 barrels. Natural Gas – Gas prices fell last week to a contract low, its lowest level in more than three months, as soft cash prices, moderating weather and ongoing concerns over rising supplies weighed on sentiment. Thursday's 111 billion cubic feet weekly drawdown was neutral to supportive, as it was just above estimates for a 109 bcf draw but in line with the 111 bcf adjusted withdrawal for the same week last year. The five-year average decline for that week is 109 bcf. The report from the US Energy Information Administration showed total domestic gas inventories fell to 1.626 trillion cubic feet, 71 billion cubic feet, or 4 percent, below last year but still 19 bcf, or about 1 percent, above the five-year average. Despite a 4 percent colder-than-normal winter this year that trimmed inventories from record highs above 3.8 tcf in November, traders expect storage to end the season at a comfortable, slightly above average 1.5 tcf. Early withdrawal estimates for this week's EIA report are in the 25 bcf to 66 bcf area versus a year-ago adjusted withdrawal of 42 bcf. FOREX Forex – The dollar dropped to a one-month low against the euro and a two-week trough against sterling on Friday, as investors pared back large bearish bets on the two European currencies following strong euro zone economic data. The biggest monthly increase on record in euro zone industrial output in January and an upward revision of figures for December also prompted a modest increase in risk appetite. US February retail sales data briefly boosted the dollar against the yen and added to optimism about the world's biggest economy. Sales at US retailers rose unexpectedly in February despite a drop in vehicle purchases and bad weather that was expected to curtail shopping, according to a government report on Friday that bolstered hopes of a sustainable economic recovery. The Commerce Department said total retail sales rose 0.3 percent as consumers bought an array of goods from necessities to luxury items. Sales for January were, however, revised down to only a gain of 0.1 percent from the previously reported 0.5 percent rise. Consumer spending has been sluggish as high unemployment squeezes household income, leading to worries that the economy's recovery from the worst downturn in seven decades could falter when support from government stimulus and the inventory swing disappears. This week, currency markets will focus on the Federal Reserve's monetary policy decision. The Fed is expected to stay on hold this Tuesday and will likely pledge extremely low rates for an "extended period." Analysts said they would be watching out for further reference to an exit strategy, although this should not be interpreted as a sign a policy shift is imminent. Japanese Yen repatriation flows are expected to benefit the Japanese currency, as Japan's corporations look to bring offshore earnings back home for their fiscal year-end this month. But yen gains are expected to be short-lived as Japan's economy grapples with deflation. The Bank of Japan is leaning toward easing monetary policy again this week, sources said, but there is disagreement among policy makers on its board on how to justify such a move. The Swiss franc fell after the Swiss National Bank said it would act "decisively" to counter any excessive rise in the Swiss currency. The Swiss central bank's announcement came as it left interest rates on hold and said signs of an economic recovery were becoming more tangible. INDICES Indices – European and global stocks, as measured by the benchmark indexes, ended at almost two-month highs last week, with the S&P 500 climbing to a 17-month closing high. Shares worldwide had been under pressure after a rise in Chinese inflation to 16-month highs sparked concerns China may tighten monetary policy sooner rather than later to curb economic growth and inflation. One year ago, Wall Street hit a more than 12-year low in the wake of the financial crisis. The Dow has since rallied about 62 percent. A slight decline in US consumer sentiment in early March offset data showing US retail sales rose unexpectedly last month, leading Wall Street to gain. Euro-zone industrial output in January recorded its biggest monthly gain on record, while figures for December were revised sharply upward, giving European equities a boost. Industrial production in the 16-country currency bloc jumped 1.7 percent from December, the steepest gain since the data series began in January 1990. Pressure from Greece was eased somewhat after Athens last week announced more austerity measures and secured 5 billion euros of debt funding from the market. Greek Prime Minister George Papandreou on Monday warned that if the Greek crisis gets worse it could lead to a new global financial meltdown. French President Nicolas Sarkozy promised that euro zone countries would help Greece if its financial problems worsened and vowed a crackdown on market speculators. German Chancellor Angela Merkel also commented on Greece's indebtedness and backed the idea of a European Monetary Fund and left open the possibility of helping Greece in the future, while emphasising it was not in an emergency now. COMMODITIES Commodities ended their worst week in a month as mixed signals on the US economy brought prices broadly down, prompting investors to await more crucial data this week. US housing, industrial output and inflation data for February are due in the coming week. Mixed numbers for consumer sentiment in early March and retail sales numbers for last month hurt prices in oil, gold and a few agricultural markets on Friday. Investors are also worried about the Chinese economy this week, after data showing February inflation at 16-month highs triggered talk that Beijing may resort to monetary tightening. China is the No.1 buyer of metals and a giant consumer of many other raw materials, including energy and food commodities. Gold briefly dropped below $1,100 an ounce on Friday despite a dollar rise, ending the week $30 weaker as investors unwound positions taken last week due to currency volatility amid a Greek debt crisis. Speculations of further money tightening by China and economic uncertainty amid sovereign debt worries out of Europe prompted heavy future liquidation last week. Gold's losses in the wake of a lower dollar indicate the inverse relationship between the metal and the US currency is broken for now, but traders said that could reverse soon. US soybeans tumbled 2.6 percent last Thursday as China cancelled purchases and amid concerns that Chinese demand for commodities could wane as Beijing tightens lending to tame soaring consumer inflation. The benchmark May soybean contract posted its biggest loss in 40 sessions when the US Department of Agriculture reduced its estimate of US soy ending stocks for the fourth month in a row. USDA data on Thursday showed China last week cancelled its purchase of 192,400 tonnes of US soybeans set for shipment in the current crop year. The cancellations of soybean purchases come as Brazil and Argentina, the second and third largest soybean producers and exporters after the United States, harvest record soybean crops. Cancellations of U.S. soybean purchases by China are particularly sensitive news to the market because the country has about 2 million tonnes of soybeans it had purchased from the United States but had yet to take delivery. This raises the potential for more cancellations due to cheaper supplies available in South America. |