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Matt Smith

Matt Smith

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OPEC Lowers Global Demand Growth Expectations For Oil In 2016

Thirty-seven years to the day after Mork and Mindy first appeared on our TV screens, and markets this week are set to be out of this world. The drumbeat builds to a crescendo on Thursday when we get the ‘will-they-won’t-they-raise-the-interest rate’ decision from the Federal Reserve. Betwixt now and then, we see a return to form in economic data, as well as veritable feast of energy information to consume.

OPEC provides this first serving, as they have released the third and final installment of key monthly oil reports after last week’s releases from the EIA and IEA (e-i-e-i-oh). The cartel has upped its expectation for oil demand growth this year by 84,000 barrels per day to 1.46 mn bpd, but revised its forecast lower for next year by 50,000 bpd to 1.29 mn bpd.

It projects that non-OPEC supply will fall by 110,000 bpd next year; this falls inbetwixt the EIA’s view of it being unchanged and the IEA’s view of a larger loss of 500,000 bpd. Related:BMW Going All-Electric

It also revised down global economic growth to 3.1% this year and to 3.4% next, highlighting US growth to remain solid (tweaking it slightly higher to 2.5%), pointing to an ongoing but uncertain recovery in the Eurozone, but emphasizing concerns about Brazil, Russia, and China. India is the outlier of the BRICs, with economic growth expected to rise next in 2016 to 7.6%, up 7.4% this year:

In terms of OPEC supplies, the cartel increased production in August by a mere 13,200 bpd, according to secondary sources. Supply losses were led by Angola and Iraq. Saudi Arabia pumped 10.36 mn bpd, up 30,000 bpd on July. According to direct communications from Saudi, however, this number was down 96,200 bpd to 10.265 mn bpd. Related: Goldman Sachs: Oil Could Sink As Low As $20

In other OPEC-related news, Iran’s draft budget bill to March 2017 is based on oil price scenarios between $42 to $50 per barrel, indicating their expectation of a low price environment in the coming year-and-a-half.

In terms of economic data-flow, we had a couple of key data points out of China overnight; while industrial production came in below expectations at +6.1% YoY (versus +6.4% expected, but a tick higher than last month’s +6.0%), retail sales numbers were more encouraging. August’s print of +10.8% YoY was better than both consensus and last month’s print at +10.5%, showing some stability in recent months:

China retail sales, % YoY (source:investing.com)

Industrial production out of Japan was down a worse-than-expected -0.8% in July on the prior month, while the Eurozone data continues to paint a brightening picture: industrial production saw a better-than-expected +0.6% increase for July on the prior month, up 1.9% YoY. Related: Why Saudi Arabia’s Pursuit Of Market Share Is Self-Defeating

The crude complex is having a downbeat start to the week, as it strikes a familiar pose in the face of a stronger dollar and a broader risk-off attitude in markets. The mixed bag of data out overnight initially put prices on the defensive, while the release of the OPEC report has only served to further sponsor this move.

Finally, falling into the ‘not necessarily relevant but interesting‘ category is an article out over the weekend talking about zombie servers, and how 10 million of them worldwide use up the energy equivalent of eight large power plants. Some more stats here:

By Matt Smith

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