Whew, these markets are swift, illiquid and sensitive. They are also continuing to function in a def...
The short and the long of oil
11/13/2009 10:30 am EST
First, the U.S. Energy Information Administration: There’s a glut of oil.
Domestic crude inventories rose 1.8 million barrels to 338 million barrels in the week ending on November 6. That was way above the 600,000 barrel increase oil traders had expected according to a Reuters survey. In addition the report showed that U.S. oil refineries are running at just 80% of capacity.
No wonder that December oil futures fell by about 3% to $77 a barrel.
Second, the International Energy Agency: There’s resurgence in oil demand.
Oil demand has started to grow again after falling for a year and a half. Oil consumption is, in fact, exceeding forecasts and is on track to show a year-to-year growth in demand for the fourth quarter of 2009. That would be the first quarter to show year-to-year demand growth since the second quarter of 2008.
It’s actually fairly easy to reconcile these two reports with their seemingly contradictory reads on the oil market.
The U.S. Energy Information Administration reports on oil supply and demand now and focuses on the situation in the United States.
The International Energy Agency is looking ahead to oil supply and demand in the next few months and reports on the global market.
The big difference in the two reports boils down to Asia. Asian economies, especially China, are leading the world out of this economic downturn. The U.S. recovery has been slower to materialize. So Asian oil demand is picking up even as U.S. demand remains relatively stagnant.
The big demand surprise, the International Energy Agency said in its report, is the speed with which demand for oil is increasing in the world’s developing economies, especially in China.
Projecting that increase in demand into the future, the International Energy Agency, raised its forecast for oil demand in 2009 to an average of 84.8 million barrels a day. That’s an increase of 210,000 barrels a day from last month’s forecast. But it is still a big drop from the 85-86 million barrels a day of 2008.
The agency now projects, however, that in 2010 demand will climb sharply to 86.2 million barrels a day. And that would put the world back where it was before the global economic slowdown of 2008.
Of course, the oil market responded to the U.S. Energy Information Administration figures because they are about demand and supply now—and not some distant future like 2010.
To me that suggests that it’s time to start looking at oil stocks again. If shares prices are taking a dip because of short-term oversupply in the United State, but the longer-term forecast is for rising demand, it might be time to buy.
I’ll take a look next week at some ways to tell what oil stocks look most promising.
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