The start of a new half-year usually provides an excuse for the investment banks to publish bullish notes on oil markets. We discuss their role in Chapter 3 of Boom, Gloom and the New Normal, to be published later this month.
Thus Goldman Sachs last week suggested oil markets will become “critically tight” in 2012, adding “in our view, it is only a matter of time before inventories and OPEC spare capacity become effectively exhausted, requiring higher oil prices to restrain demand, keeping it in line with available supply“.
The problem for the banks is that oil prices are already at levels which have always led to recessions in the past (new readers click here for details). The chart above shows just how far prices have risen since the market rally began in January 2009, with the period since the IeC Downturn Alert began highlighted in yellow.
Equally, it is hard to see how China’s out-of-control inflation, or last week’s disappointing US jobs figures, or the continuing Eurozone debt crisis, can really be bullish for demand.
The detailed moves since January 2009, with ICIS pricing commentary on market sentiment last week, are below:
PTA China (red), up 81% since January 2009. “Most market players would rather take a wait-and-see stance”.
Benzene NWE (green), up 308%. “Upward movement was primarily caused by a $7/bbl hike in crude futures.”
Naphtha Europe (brown dash), up 214%. “Demand from the petchem industry remains limited” with propane a more attractive feedstock
HDPE USA export (purple), up 88%. “Prices would need to fall into the lower 50 c/lb range before demand for US exports would improve”.
Brent crude oil (blue dash, right hand scale), up 154%.
US S&P 500 Index (pink dot), up 51%.