Crude Oil Set To Tank?
Evidence of demand destruction is showing up in tanker rates. Two key Persian Gulf routes have seen rates drop between 40% and 50%. This obviously reflects reduced buying of OPEC oil.Also, there is more evidence that the price of crude is being held up by speculators or mindless investors who are pouring money into the futures market. The data released by the Treasury for OTC commodity derivatives showed exposures held by US banks more than doubled in the third quarter. If there is a financial disaster looming, it could be a large hedge fund that takes it on the chin in the bubbly energy market.
There are also rumblings that the Saudi budget is assuming $40 crude for 2007, about 34% lower than current prices. Longer term I think sub $40 is very likely as OPEC will want to make projects like the tar sands uneconomical and regain some lost market share and power.
posted by Never-Limp at 6:38 AM
6 Comments:
whats the impetus to drive oil down? Everyone makes money at this level, consumers have adjusted to it, airlines have adjusted and somehow are thriving in spite of it.
OPEC is making *some* effort to cut supply and support the price...i don't see where you get the OPEC wants is lower theory
demand may be below some estimates but its still growing faster than supply is
The high price ($40 plus) has attracted entrants and created new competition for OPEC. They are now slowly losing market share and power. At some point, they will get tired of losing share and seek to drive competitors out of the market. Since they are the low cost producer ($3), they could easily do this by offering crude at prices that are uneconomical for the likes of the tar sands (below $40).
The latest estimates that I've seen for 2007 call for demand growth of about 1.5% while supply growth is estimated at 2.5% or so, much of it coming from non-OPEC sources.
The catalysts that generated the oil rally were: 1) strong demand growth from Asia 2) shrinking spare OPEC capacity and 3) worries about long-term production growth stalling, i.e. peak oil theory.
Now, demand growth is slowing, OPEC has cut production twice and freed-up spare capacity, and new finds in the gulf and elsewhere are squashing peak oil theory, not that it was credible to begin with since it doesn't take into account alternative sources (tar sands, shale etc.) and technological improvements (seismic, drilling etc). Also, I would hope that once we have signs that supply is clearly growing faster than demand that the fast money in the futures market would come pouring back out thus pushing down the price.
Here is a little more info:
Non-OPEC supply is forecast to increase by 3.1% to 52.6 million bbl in 2007, up from 51.
OPEC, since they are supposedly cutting production (it's well known that they cheat because of the strong economic incentive to do so) is now expected to produce 34.1 million bbl in 2007, down from 34.5.
Total projected supply = 52.6 + 34.1 = 86.7
Worldwide demand is expected to increase by 1.6% from 85.3 to 86.7 (and there are signs in the last few days that suggest demand growth is slowing)
It is clear to me that supply growth can outpace demand growth.
where do you get demand data?
You can get it from the Energy Information Administration (IEA), big oil companies, analysts etc.
Sorry, International Energy Agency is the IEA.
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