Somebody Please Explain What’s Going on With Oil
As I write this, oil is below $60, testing support again. So far, so good. We know that inventories are way over 5-year averages. In fat, crude oil inventories have hit their 3rd-highest level ever. Heck, gasoline inventories are 6% above year-ago levels. So it’s a no-brainer that prices are falling, in the short-term, anyway.
But hold on a minute. Remember the Strategic Petroleum Reserve? It was tapped for about 11 million barrels in the wake of Hurricane Katrina. With oil prices comparatively “low,” you would think now would be a good time to refill it. Nope! The Bush Administration has been dragging its feet on this for months, and now the Energy Department says it’s not going to refill the SPR until next spring. Hmm … what would it do to US inventories … and the November elections … if the SPR was refilled now?
And while we have a surplus, other places are running out of oil and gas. Zimbabwe, Bangladesh, Sudan and other backwaters have seen protests and riots over lack of fuel. Yes, they're awful countries, but they still have some kind of money, don't they? Where’s that efficient market when we need it?
Anyway, Newsweek assures us that our fears of booming global demand, fueled by enormous growth in China, are unwarranted: “alarmists began screaming $100 oil when Chinese demand registered astonishing increases of 12 percent in 2003 and 16 percent in 2004, only to slide back to 1.5 percent in 2005. It is now on pace to reach 6.1 percent in 2006, according to the IEA.”
Not so fast! Newsweek should have talked to the Chinese before saying that. It turns out that Chinese oil demand is growing at a double-digit rate. China has imported 95.8 million tons of crude oil in the first 8 months this year, up 15.3 percent from the same period last year, according to the National Development and Reform Commission (NDRC), on September 29.
And now we have a story from Bloomberg saying that crude oil demand is going to increase next year and may outpace the development of new deposits. As a result, analysts are hiking their price targets.
“We see a very tight market continuing into next year,'' Kevin Norrish, a director of commodities research for Barclays Capital in London, told Bloomberg. Barclays expects oil next year to average $76.70 a barrel, the highest forecast in the survey.
“The recent fall in prices is due to short-term factors,'' he said in an interview. ``We're looking for fairly strong global growth, and we don't see capacity expanding by much.''
So who do we believe? Is it a time to buy oil and oil stocks, or a time to sell?
But hold on a minute. Remember the Strategic Petroleum Reserve? It was tapped for about 11 million barrels in the wake of Hurricane Katrina. With oil prices comparatively “low,” you would think now would be a good time to refill it. Nope! The Bush Administration has been dragging its feet on this for months, and now the Energy Department says it’s not going to refill the SPR until next spring. Hmm … what would it do to US inventories … and the November elections … if the SPR was refilled now?
And while we have a surplus, other places are running out of oil and gas. Zimbabwe, Bangladesh, Sudan and other backwaters have seen protests and riots over lack of fuel. Yes, they're awful countries, but they still have some kind of money, don't they? Where’s that efficient market when we need it?
Anyway, Newsweek assures us that our fears of booming global demand, fueled by enormous growth in China, are unwarranted: “alarmists began screaming $100 oil when Chinese demand registered astonishing increases of 12 percent in 2003 and 16 percent in 2004, only to slide back to 1.5 percent in 2005. It is now on pace to reach 6.1 percent in 2006, according to the IEA.”
Not so fast! Newsweek should have talked to the Chinese before saying that. It turns out that Chinese oil demand is growing at a double-digit rate. China has imported 95.8 million tons of crude oil in the first 8 months this year, up 15.3 percent from the same period last year, according to the National Development and Reform Commission (NDRC), on September 29.
And now we have a story from Bloomberg saying that crude oil demand is going to increase next year and may outpace the development of new deposits. As a result, analysts are hiking their price targets.
“We see a very tight market continuing into next year,'' Kevin Norrish, a director of commodities research for Barclays Capital in London, told Bloomberg. Barclays expects oil next year to average $76.70 a barrel, the highest forecast in the survey.
“The recent fall in prices is due to short-term factors,'' he said in an interview. ``We're looking for fairly strong global growth, and we don't see capacity expanding by much.''
So who do we believe? Is it a time to buy oil and oil stocks, or a time to sell?
Check out my new gold and energy blog at MoneyAndMarkets.com
posted by Sean Brodrick @ 10:02 AM
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