The chart illustrates that there has been an immense decline in US consumption of oil since the big rise in the first half of the last decade. The demand destruction takes a long time. It did in the early 1980s. The data on Europe shows the same thing. The US, Europe, and Japan are half of world consumption. The data by IEA and others still says that oil demand globally is growing at one percent. But you have to have giant increases in the emerging world for that to be the case. Henry Groppe of Groppe, Long and Littell (one of the best independent oil analysts around) says demand should be down this year. He says the emerging world data on oil demand is non existent and all estimates are guesses. I think he is right. If that is the case and with US production of liquids up by more than 600k barrels a day I figure the oil market is in a large surplus.
But then where is that oil going? Remember 1990. when Saddam went into Kuwait: the oil price went from 20 to 40. It stayed there as we prepared to invade. Then on the night of Jan. 17th came the first airstrike. That night the oil price went from 40 to 20.
Why? Because during the prior five months, the Saudis and the allies built hidden oil reserves. And then the night of the air strike they dumped them. That killed the specs. Now we know that the allies and the Saudis want the oil price down, and they know the specs are holding it up. I’m not saying the Saudis want the price down to $50 as they still have to bribe their way to social peace. But $80 might well be in the cards.
Read the rest at Pinetree Capital | MacroBits
Speculators might be in for a crude awakeningby Marshall Auerback
(h/t Kevin Fathi)
3 comments:
I heard an oil analyst on CNBC last week say that oil should be in the $55 a barrel range. I think Mr. Aureback supports that estimate. How bad do you think that would hurt the big banks since they are most certainly up to their necks in oil speculation?
banks are long and short, if the drop is not fast they can engineer selling and be winners of this move (again).
Other problem is all their investments to support high prices on the long side, a lot of warehouses to rent, etc.
From now on to late 2012 I also see a drop in the oil market towards the $75 spot. But we my have sluggish prices until May or June before a big drop (I would say the same thing about equity market, though CB easiness and big deficits have projected an usual strength on equities I don't think there is a real case for a new bull cyclical by a long shoot, but could be wrong).
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