Bulls and Bears on Oil

11/13/2009 3:02 pm EST

Focus: COMMODITIES

Jim Jubak

Founder and Editor, JubakPicks.com

Same day, November 12. Two different reports. Two different views on oil.

First, the US 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 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 US oil refineries are running at just 80% of capacity.

No wonder December oil futures fell by about 3% to $77 a barrel!

Second, the International Energy Agency saw resurgence in oil demand, which 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 such 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 US Energy Information Administration reports on oil supply and demand now and focuses on the situation in the US.

The IEA 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 US recovery has been slower to materialize. So, Asian oil demand is picking up even as US 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. (For more on the current state of China’s economy, see this recent post .)

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 US 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 share prices are taking a dip because of short-term oversupply in the United States, but the longer-term forecast is for rising demand, it might be time to buy.

I’ll take a look next week on JubakPicks.com at some ways to tell what oil stocks look most promising.

Full disclosure: I don’t own any stocks mentioned in this post. (Not that any are, of course.)

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