A series of supply squeezes oil have helped greatly this year, but some of them are short-term factors and may give way to longer-term weakness as the outlook for the world economy and global demand for fuel is dimmed. The revolt against Muammar Gaddafi in Libya, production problems in the UK and Norwegian North Sea, reduced supplies from Russia, Central Asia, Nigeria and Angola have all cut inventories, especially of high quality, light, low sulfur crude oil.
More than 2 percent of global oil supply has been lost in a time of strong demand from emerging economies like China, keeping the oil market, in the words of a Merrill Lynch report on Tuesday, as tight as a drum. ”
Brent crude oil remained above $ 100 a barrel for most of the year and hit $ 127 in April, the highest since 2008.
But if economic growth slows in the U.S. and the debt crisis deepens in the euro area demand for oil could fall.
And the economic downturn has coincided with the removal of part of the supply issues to support the market as Libyan oil exports to restart and the North Sea maintenance ends.
“The oil market is caught between bearish and bullish macroeconomic factors, microeconomic factors in the oil sector,” said Julian Lee, senior energy analyst at the Center for Global Energy Studies in London.
Many analysts say the two poles of the “micro” power in the oil market and the “macro” weakness of a slowing world economy are strong enough to hold for some time, but others are convinced that a period of severe deficiency may be .
FUTURES SWITCH
“Notwithstanding the current strength of the fast rates, we think there is room for a downward correction in the coming weeks,” said Christophe Barret, global oil analyst at the French bank Credit Agricole.
“The long term outlook for oil prices seems weaker. The economic environment remains very weak in Europe and the United States, renewing fears of a significant slowdown in the coming months,” Barrett added.
A sign of the changing attitude towards the price of oil can be seen in Brent futures, where the margin between the nearby futures and oil futures have in recent months moved forward now with prices at a significant discount on prompt.
While futures prices are not a prediction of where the market will go, they are a reflection of the current problems and a deep discount striker gives density is considered temporary.
One difference between stock markets and oil prices may also be a warning signal. Since July there have taken a dive global equities with the MSCI World stock index. MIWD00000PUS loss of around 15 percent, while Brent fell by only half that.
The last time there was a similar difference in 2008 was both a sharp drop in oil prices and a deep recession.
Copper, a good indicator of true industrial demand, a sharp tumble since July, causing oil behind.
$ 75 per barrel
Chris Weafer, chief strategist at Troika Dialog investment company of the Russian, said valuations in the Russian stock market, sensitive to oil, although a significant drop in the price of Urals crude, which is similar to Brent prices.
“The current stock market levels reflecting Urals closer to $ 75 a barrel,” said Weafer.
The biggest change in oil supply in the coming years the return of Libyan oil production, which was pumping about 1.6 million barrels per day (bpd) for the insurgency in the country took in February.
Saudi Arabia and the Organization of Petroleum Exporting Countries members have raised output to fill the gap left by Libya and be less filling pump as Libyan exports to resume, the OPEC Secretary General Abdullah al-Badri said.
But past experience suggests that it is harder to cut than raise output, especially when spot prices are slipping.
Credit Suisse Private Banking Commodities analyst Stefan Graber says even with lower oil production from the rest of OPEC, the global oil demand is not strong enough to absorb Libyan oil when it returns to the market
“Moderating the short term momentum suggests that prices could continue to extend their pullback in the day,” said Graber.
Eventually, prices will reflect the pace of global oil demand growth, which tend to be equivalent to about 90 percent of global economic growth minus 2 percentage points.
Most predictions of global GDP growth next year are between 3.5-4.0 percent, suggesting a modest growth in oil consumption.
But the latest Reuters poll suggests the likelihood of a recession in the United States, Europe and the United Kingdom is now about one in three, dangerously close to where such predictions were correct in the past.
And if Europe can solve its debts and allows a global financial crisis, as some bankers fear, oil could collapse. David Hufton, PVM Oil Associates head of real estate agents says:
“If we come out next weekend with a different set of announcements anemic, there is no prospect that the price of oil, or any other risky assets will have at something like current levels.”
source:reuters
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