Energy market professionals say that when assessing the oil market today, it's important to focus on one factor, demand.Crude's rally from the low $30-range to above $50 per barrel in less than a month had visions of $60 oil dancing in the heads of oil bulls, but it was a rally that nevertheless flew in the face of demand fundamentals.
Declining demand is the key
Those fundamentals show, among other consumptions stats, real declines in both oil and gasoline consumption in the United States, and a decline in the growth of oil consumption in China -- two major energy markets, Energy Trader Jim Dietz said.
The consequence? Inventories are rising worldwide, he said. One example: oil inventories at Cushing, Oklahoma, where fuel for NYMEX traded contracts is stored, has increased to 32.4 million barrels, the highest level since 2004. Nations and other oil producers are also increasing their storage of oil at sea in supertankers, Dietz added.
"The bottom line is inventories are rising, OPEC's production cuts have not been enough to offset this inventory build, and the path of least resistance for oil remains lower," Dietz said.
That trend continued Tuesday, as oil fell 68 cents to $36.91 per barrel in early Tuesday trading. Oil has declined about 25% in a week, and Dietz sees more drops ahead.
"Barring a major geopolitical event, we will remain in a downtrend at least through March," Dietz said. "OPEC can only cut so much because many OPEC nations need oil as a source of revenue for government operations. That will keep production at a minimum and along with non-OPEC supplies, it all but guarantees rising inventories, until demand starts to pick up." Dietz added that he sees oil testing $35 soon, and then a slow fall to$30.
Oil Analysis: Dietz added that oil could decline well into the spring quarter -- historically the lowest oil use quarter of the year -- if there is no hint of a recovery in the U.S. and global economies.
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Reader Comments (Page 1 of 1)
1-13-2009 @ 12:34PM
Sheldon L said...
Amen!
And the continued lower cost will contribute to healing the world economy.
1-13-2009 @ 2:42PM
Iridium said...
As long as the stock manipulators remain in play oil will never return to demand based price levels. Right now oil should be trading at $15 a barrel with the ammount of outstanding supply.
Stock manipulators on Wall Street gave the Arab world a great gift by driving the price of oil $120 past its true market value. The Arab world now blames the stock manipulators for allowing the price of oil to fall $100 taking away the immense profits they made through nothing.
We are going to be attacked again because of this. The Somali pirates are being bankrolled by the middle east to hijack thier own tankers. You think it is just a coincedence that this started happening when the price of oil started to fall. How does a little band of teenagers in a raft hijack a supertanker? They can only do this if the supertanker wants to be hijacked. The entire operation is done to raise the price of oil through artificial means.
If the production cutbacks fail to raise the price of oil to $60 the Arabs will start attacking US targets in order to create geopolitical tension in order to raise the price of oil.
The entire situation is insane. The US government allowed stock manipulators to drive the price of oil up to $140 per barrel through backroom bribes and payoffs. Now we have to pay the price either through dollars at the pump or through our lives in a coming war.