Crude oil markets have risen 60% in recent months, as traders speculate on a quick V-shaped economic recovery. But there are growing signs that reality, in the shape of evidence of falling US and global oil demand, may be about to reassert itself.
Latest US statistics remain very negative:
• Total oil product demand is 6% below H1 2008 levels
• Crude oil stocks at 350mb are well above normal seasonal levels
• Current stocks are 18% higher than a year ago
In summary, the story of 2009 continues to be stocks rise, demand drops, prices rise. This is an obvious inconsistency, which can only be resolved by either an increase in demand, or a fall in prices.
The blog’s reading of the International Energy Association’s (IEA) new ‘Medium-Term Oil Market Report’ suggests the latter outcome is much more likely. As the chart shows, the IEA is now expecting negative ‘real’ (ie adjusted for inflation) global GDP growth in 2009. This did not happen even in the recessions of the early 1980’s or 1990’s.
The IEA is therefore expecting an actual decline in global oil demand this year. And it has introduced a “lower case scenario”, which it says is “just as likely” as its previous “business as usual” case (which was based on a V-shaped economic recovery). This new scenario pushes out any “supply crunch” until 2013, as consumption only returns to 2008 levels by 2012.
Geopolitics (eg Iran, Nigeria) can always change oil market balances very quickly. But in the absence of supply disruption, chemical companies need to keep a close eye on changing sentiment in financial markets. Thursday’s worrying US unemployment rise, unless quickly reversed, may prove to be the catalyst for such a change to take place.