Tweet
http://www.arabnews.com/?page=6§...=3&m=10&y=2008
Fears of a global economic meltdown have overtaken the oil markets. Further contraction is a reality — now looming large on the horizon — and the crude markets could not be far behind in taking the cue.
Prices continued to fall on concerns that even a US bailout of its ailing financial sector would not be enough to restore the declining oil demand. Markets lost nearly 10 percent in New York in response to the dramatic rejection of the $700-billion bailout plan by US legislators last Monday, dropping more than $10 a barrel to slip below $100, and they appear poised to keep falling.
“Oil traded for the last five years on fear of supply interruptions. It is now trading on fear of economic collapse,” James Williams of WTRG Economics said, adding downward pressure on oil prices should continue.
Market sentiments today stand drastically altered. The sharp rise to $130 a barrel the week before is again history — more of an aberration, the last gasp for the bull market — rather than the beginning of a run to new record highs.
The outlook for oil demand is weakening, shifting the sentiment of oil markets from bullish to bearish, says the London-based Center for Global Energy Studies in its September Monthly Oil Report.
The world oil demand, at its weakest level in at least five years, is likely to be a driving force — downward — behind oil prices for the rest of the year. The US and European demand is now down from a year ago, and some consider it only a matter of time before the contagion spreads to fast-growing developing economies.
Oil consumption in the OECD is down 1 million bpd year-on-year and Beijing despite being a wild card in the overall calculation, many now assert its contribution to oil demand growth is set to falter, with Sinopec reportedly planning to cut crude oil imports by 8-10 percent(around 240,000 bpd) until the end of the year in order to draw down stocks built up ahead of the Olympic Games.
Should the turmoil in financial markets widen, as many believe it must, demand for Asia’s merchandise exports will be hit, undermining the robust economic growth that has spurred the region’s oil consumption.
Back in 2005, the appetite of the world’s biggest oil consumer, the United States, was growing at 1 percent during the first eight months of year, compared with a year earlier. This year, demand dropped 4.2 percent through August from the pace of the first eight months of 2007.
In the week ended Sept. 19, total US oil demand slumped 1.4 percent to 18.784 million barrels a day, the lowest since March 8, 2002, EIA data show.
And since Hurricane Gustav hit on Sept. 1, demand is averaging just over 19.1 million barrels a day, off nearly 1.3 million barrels a day from a year ago and 1.15 million barrels a day weaker than in August. The current demand is on pace to be the lowest in any month since December 2001.
MasterCard’s SpendingPulse report, which tracks gasoline sales, said demand in the week ended Sept. 19 plunged 5.7 percent week to week and was 7.6 percent below a year ago, at the lowest level since mid-April 2007.
The US markets seems to have overridden the concerns over the economy as the sliding fuel demand outweighed hurricane-related supply disruptions that have pushed US gasoline stockpiles to their lowest level since 1967, when America’s gasoline demand was just 5 million barrels a day, almost half its current daily consumption of 9 million, the EIA said.
It seems oil producers can no longer count on fast-growing developing economies to make up for lost US and European demand. Until now china has been the major driver of the markets, with its galloping consumption. But things seem to have changed there too. The gap between China’s growing oil usage and declining consumption in the US is growing. According to some estimates earlier in the year, Chinese demand was growing at about the same pace the US demand was dropping. Not any more. In August, China was able to compensate for only half the decline in the US, says Paul Ting, of the US-based consultancy Paul Ting Energy Vision LLC. “The fate of oil prices over the course of the next year or so is very much a function of demand deterioration,” Ting said. “US demand has declined by a much greater amount than the growth coming out of China.”
Producers are aware of the scenario. A report by Petrologistics said last week that OPEC oil supply fell by 800,000 barrels per day (bpd) in September due to lower output from members including Saudi Arabia and Iran.
However, the recent drop in OPEC supplies is giving rise to another interesting debate within the greater energy fraternity — what price is OPEC trying to defend. Most now argue that OPEC was ready to defend a price of something around $100 a barrel.
Fears of a global economic meltdown have overtaken the oil markets. Further contraction is a reality — now looming large on the horizon — and the crude markets could not be far behind in taking the cue.
Prices continued to fall on concerns that even a US bailout of its ailing financial sector would not be enough to restore the declining oil demand. Markets lost nearly 10 percent in New York in response to the dramatic rejection of the $700-billion bailout plan by US legislators last Monday, dropping more than $10 a barrel to slip below $100, and they appear poised to keep falling.
“Oil traded for the last five years on fear of supply interruptions. It is now trading on fear of economic collapse,” James Williams of WTRG Economics said, adding downward pressure on oil prices should continue.
Market sentiments today stand drastically altered. The sharp rise to $130 a barrel the week before is again history — more of an aberration, the last gasp for the bull market — rather than the beginning of a run to new record highs.
The outlook for oil demand is weakening, shifting the sentiment of oil markets from bullish to bearish, says the London-based Center for Global Energy Studies in its September Monthly Oil Report.
The world oil demand, at its weakest level in at least five years, is likely to be a driving force — downward — behind oil prices for the rest of the year. The US and European demand is now down from a year ago, and some consider it only a matter of time before the contagion spreads to fast-growing developing economies.
Oil consumption in the OECD is down 1 million bpd year-on-year and Beijing despite being a wild card in the overall calculation, many now assert its contribution to oil demand growth is set to falter, with Sinopec reportedly planning to cut crude oil imports by 8-10 percent(around 240,000 bpd) until the end of the year in order to draw down stocks built up ahead of the Olympic Games.
Should the turmoil in financial markets widen, as many believe it must, demand for Asia’s merchandise exports will be hit, undermining the robust economic growth that has spurred the region’s oil consumption.
Back in 2005, the appetite of the world’s biggest oil consumer, the United States, was growing at 1 percent during the first eight months of year, compared with a year earlier. This year, demand dropped 4.2 percent through August from the pace of the first eight months of 2007.
In the week ended Sept. 19, total US oil demand slumped 1.4 percent to 18.784 million barrels a day, the lowest since March 8, 2002, EIA data show.
And since Hurricane Gustav hit on Sept. 1, demand is averaging just over 19.1 million barrels a day, off nearly 1.3 million barrels a day from a year ago and 1.15 million barrels a day weaker than in August. The current demand is on pace to be the lowest in any month since December 2001.
MasterCard’s SpendingPulse report, which tracks gasoline sales, said demand in the week ended Sept. 19 plunged 5.7 percent week to week and was 7.6 percent below a year ago, at the lowest level since mid-April 2007.
The US markets seems to have overridden the concerns over the economy as the sliding fuel demand outweighed hurricane-related supply disruptions that have pushed US gasoline stockpiles to their lowest level since 1967, when America’s gasoline demand was just 5 million barrels a day, almost half its current daily consumption of 9 million, the EIA said.
It seems oil producers can no longer count on fast-growing developing economies to make up for lost US and European demand. Until now china has been the major driver of the markets, with its galloping consumption. But things seem to have changed there too. The gap between China’s growing oil usage and declining consumption in the US is growing. According to some estimates earlier in the year, Chinese demand was growing at about the same pace the US demand was dropping. Not any more. In August, China was able to compensate for only half the decline in the US, says Paul Ting, of the US-based consultancy Paul Ting Energy Vision LLC. “The fate of oil prices over the course of the next year or so is very much a function of demand deterioration,” Ting said. “US demand has declined by a much greater amount than the growth coming out of China.”
Producers are aware of the scenario. A report by Petrologistics said last week that OPEC oil supply fell by 800,000 barrels per day (bpd) in September due to lower output from members including Saudi Arabia and Iran.
However, the recent drop in OPEC supplies is giving rise to another interesting debate within the greater energy fraternity — what price is OPEC trying to defend. Most now argue that OPEC was ready to defend a price of something around $100 a barrel.
Comment