Thursday, May 28, 2009

So during March and April I was beginning to think that my "turning point" post might have been premature. Perhaps it was - as we saw some continued inventory build. But since May came along we have seen 3 weeks of falling inventory in a row. And since April weve also seen the equities markets make something of a rally. Ben Bernanke has been talking about "green shoots" and signs of a recovery, Unemployement data is showing that new claims are falling, housing is SLOWLY making a come-back.

And when we look at the demand picture we see that gasoline is about even with this time last year, Jet fuel and distillate demand is off about 9% (and accounts for a little less than half the consumption in the US) So overall oil demand is off about 4 to 5%.

I think we are seeing that supply has come down by about 4 or 5%, and Global demand hasnt fallen in all places (like China) so the global picture may continue to tighten this year - we should expect US inventory to fall a little more.

Some wonder if all the stored oil (stored due to the massive market contango that we saw months ago) starts to unwind we might see some prices come down, but I cant help thinking that that the stored oil was already "priced in" to the market when we were at $50. So as those storage tankers drop their cargo we will simply see global inventory fall which will support prices (this assumes people are counting tankers as they should be)

So the big questions still hang on OPEC policy.
What price will OPEC open the taps at? They claim to want $75/bbl but I cant help wonder if they will let it go way past that - they went well past their targets last time. And additionally how long will it take to get there? If it takes more than about a year we might lose enough capacity in OECD and non opec countries due to depletion that the OPEC taps will lose their market influencing power.

I still think its possible to see $80/bbl this year so we might see what OPEC has in store, but I suppose it really all depends on the "recovery". There are still plenty of worrying signs that the recovery wont happen this year at all. 1 in 8 homes in the US are behind on payments or in foreclosure. Thats a staggering statistic this late in the crisis. youd think by now that most of the trouble would be behind us and that those who remain in their home would be more up to date than that. 1 in 8 tells me there may be a lot of bad news yet to come.