Prices and production
Wednesday’s stocks report showed unexpectedly large increases in crude, gasoline, and distillate inventories. This coupled with gasoline consumption falling to 8.8 million b/d, the lowest since January, and an increase in imports was enough to send oil prices back down to close at $68.97. The heart of the issue is whether the markets are pricing in prospective demand increases or shortages that may not develop for many months.
Some analysts are predicting a plunge in prices soon as stockpiles in the US, Europe, and possibly China continue to increase with OPEC pumping 600,000 excess b/d. The cost of options to protect against a plunge in oil prices has been increasing. Some analysts expect crude which was above $75 a barrel in August to fall in to the $50s or lower. One widely-quoted analyst sees oil in the $30s later this year – a development that would not only stir OPEC to further action, but would put another crimp in investment.
Wholesale gasoline futures in the US which were pushing $2 a gallon in August have fallen to the vicinity of $1.70. Natural gas prices, which reached a low of $2.40 per million BTUs earlier in September, are now back in the vicinity of $4.
Chinese Demand
With demand for petroleum products in the US and other OECD countries continuing to slip, attention is focusing on whether increased Chinese demand can offset declines elsewhere. On Tuesday, prices slid after the Chinese reported that their apparent oil decline slid 5.4 percent in August from July – the first month to month drop since March.
China’s imports for August 2009 were still 2.9 percent higher than August 2008 as demand during the Olympics and the beginning of the economic contraction was very low.
This week the Asian Development Bank jumped on the “Asia is growing” bandwagon with a new estimate that China’s GDP will grow 8.2 percent this year, up 1.2 percent from the March estimate and will grow 8.9 percent next year. India is expected to grow 6 percent and the Asian developing countries as a group 3.9 percent. If these numbers turn out as forecast it suggests that Asia has succeeded in stimulating local demand enough to more than offset declining exports to the OECD.
Issues remain over whether China’s rapid growth during the last few months are real economic growth or part of a government stimulated bubble. Should Asian demand for oil continue to grow, as at the least the Saudi’s appear to believe, oil prices could move higher making a US economic recovery ever more difficult.
