By Chris Shaw

Oil demand forecasts according to the three main players in the market – the International Energy Agency (IEA), OPEC and the US Energy Information Administration (EIA), all indicate a modest to steady pace of growth in 2011.

Developing economies will drive this growth, as all three groups expect oil demand from developed economies to show only a small gain in 2011, if not in decline slightly.

In the view of Commonwealth Bank chief commodity strategist David Moore the risk to this view is to the upside, largely given the potential for requirements for OPEC crude to increase through next year and into 2012.

Such an increase would cut into OPEC's surplus capacity, while Moore also suggests OPEC are likely to be reluctant to quickly increase supply targets in response to any growth in oil demand.

This supports his expectation for the oil price to track higher through 2011, his forecasts calling for prices to end the September quarter this year at around US$75 per barrel before rising to US$77 per barrel by year's end. In 2011 Moore is forecasting quarterly oil prices of US$78 per barrel in March, US$82 per barrel in June, US$86 per barrel in September and US$90 per barrel by the end of 2011.

Turning to base metals, figures published last week by the International Lead and Zinc Study Group showed the zinc market was in surplus for the first five months of 2010 by 209,000 tonnes. Commonwealth Bank expects this surplus will temper zinc price performance over the rest of the year.

In the view of Standard Bank, the outlook is not so clear as zinc prices appear to be in something of a mini-battle at present, as turnover has been relatively good in recent sessions yet the price has not moved as much as the other metals.

With open interest drifting lower a previous large short position in the metal appears to be diminishing, even though the bank suggests the market feels like it is being purposely smothered at present.

The full story is for FN Arena subscribers only. To Subscribe click here

Or If You're New To FN Arena - click here for a trial

If you are a subscriber login here