Oil futures traded down 12 cents to $39.94 per barrel early Thursday and even though the price may straddle the $40 range for awhile, oil is likely headed lower on a new, longer-term dynamic: declining U.S. demand. That's correct: declining U.S. demand. The last 20 years have been characterized by rising U.S. oil consumption, but now the U.S. Energy Information Agency. incorporating the most-recent changes in U.S. consumer behavior, says there will be no appreciable growth in U.S. oil consumption between now and 2030, with biofuels accounting for all of the growth in liquid fuels.
Energy Trader Jim Dietz, who bases his trades on oil demand, told BloggingStocks Thursday if the EIA's forecast proves to be accurate, it alters the structure of the oil market.
"Most models assume increasing U.S. oil demand, with even small increases during a recession. If in fact U.S. demand continues to decline, OPEC's production cuts short-term will not be enough to keep inventories from rising, and oil will fall below $30 per barrel," Dietz said. "The EIA's report is one of those reports that doesn't get a whole lot attention, but it has some remarkable predictions." Dietz added that he is currently short oil and unleaded gasoline, with monthly contracts.
Dietz said several factors have changed the U.S.'s oil use pattern. Stagnant real incomes for many employment categories, perhaps an increased environmental-impact awareness, and the belief "that oil and gasoline prices are low but won't remain this low" have led to declines in U.S. gasoline consumption, and prompted consumers to choose more-efficient vehicles.
Those demand factors, combined with flat-lining emerging market consumption, particularly in China, create "a decidedly less bullish demand picture for oil." Oil prices will begin to trend higher long-term, as the U.S. and global economies recover, but for most of 2009 Dietz sees oil trading in a $30-45 range and struggling to maintain gains above $45.
Amid a U.S. and global recession, oil has fallen more than $100 since hitting a record high on $147.27 per barrel last summer.
Oil Analysis: Of course, the U.S. EIA's projection could prove to be wrong, with Americans returning to their large SUV-buying ways, but the long recovery road for the U.S. economy and a restructured U.S. auto industry argue against that retrenchment. Perhaps the U.S. is kicking its gas-guzzling habit. We'll see. Stay tuned.
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Reader Comments (Page 1 of 1)
12-18-2008 @ 12:56PM
JCH said...
Surely there is somebody in New York who can comprehend that the OPEC cut has absolutely nothing to do with today's barrel prices.
It's a supply line. The oil selling today was produced upon notions of demand that existed at the end of last summer. The OPEC cuts will determine the price of spring oil, and it is an absolute lock that the OPEC cuts will make that oil more expensive than if there had been no OPEC cut.
Unless members of OPEC cheat on their quotas, there is no way an OPEC cut can fail. It's impossible. In a deflationary spiral, there still is a higher price, and the only way to get it is to control production. They will achieve that. They aren't going to repeat their past mistakes.
12-19-2008 @ 3:54PM
Matt Mitchell said...
JHC
You fail. Miserably.