Energy report: Where is the demand?

Oh No My Recovery is Nascent.

Hey maybe, just maybe mind you, a “nascent” recovery isn’t so bullish for oil after all. You think? Fed Chairman Ben Bernanke may have given oil a bit of a boost by his proclamation that interest rates will stay low and that the economy still needs his help but it seemed not to be as bullish for stocks and oil especially after weak durable goods report and weekly jobs number. In fact you could almost see the mood of the market shift as you glanced across the entirety of the commodity board. You could sense fear as oil broke along with industrial metals like copper, yet gold and silver and the dollar rallied which is a sign that the market is worried that the global economy is going to get very ugly.

Again! Of course there were reports like the one by the Bombay Bullion Association that said gold imports into India increased by 400% from last year and speculation that the Chinese were active buyers as well but the negativity of stocks and industrials and strength in the treasuries suggests that angst about the recovery is rising.

The bottom line is that Big Ben comments do not bode well for future energy demand and is not like demand has been that great any way. Case in point is comments by the executive director of International Energy Agency Nobuo Tanaka as reported by Dow Jones Newswires who said that global economic recovery has yet to boost demand for oil. Not only that, he said that as we look forward there is actually more downside risks to demand then upside risks. IEA executive director Nobuo Tanaka told Dow Jones Newswires that, "Demand numbers have not been as strong as the macro economists say the economic recovery has been. With stimulus packages, the economic recovery may be happening, but we haven't seen any statistics that demand is recovering." He also says that the IEA has been suspicious these months about what is happening with regard to reports of improving demand and higher prices.

Maybe what is happening is the economy and demand growth is just not happening to the extent oil bulls would like to believe. Tanaka also says it is important that leading producer and consumer countries need to provide clearer data on production and demand levels with emerging markets expected to account for any increases in oil demand this year. He also said that, "It would be good for China, and in their own interests, to provide good data and stabilize the market."

Dow Jones also reported that Scott O'Malia, one of two Republican commissioners at the U.S. Commodity Futures Trading Commission, raised concerns about a lack of oil data from developing countries like China and Russia. "It's imperative that oil markets have accurate and timely data regarding tightening in market conditions if we hope to avoid the future price spikes that will undermine our economic growth.” Oh and buy the way, the speculators help with that too, giving the market the best idea how market conditions are.

And if you want more evidence that demand is not that great, the U.S. Department of Energy’s Short Term Energy Outlook is another grim reminder. The DOE said that U.S. oil demand for 2009 was at the lowest level since 1997. Revised demand averaged 18.686 million barrels a day which was down 4.2%, or 812,000 barrels a day, below a year ago. This is the fourth year in a row that demand has fallen and the first time that has happened since 1979-83. Oil Imports also dropped dramatically falling 13.7%, in December from a year ago or 1.286 million barrels. That was the biggest drop since 1999.

I guess the question you have to ask yourself is if you are bullish, why? The China demand numbers are suspect, it appears the dollar has bottomed and demand is tepid. The price of oil has been supported by the Fed yet with rising concerns of debt and credit issues in Europe the dollar is looking better every day. I know there are those out there that think I'm crazy to say that oil could go back to the $40 handle yet the bearish elements are rising. There is a shifting of the economic props that have been keeping us up and that will lead to lower prices over the long run. Of course as I have said time and time again, it will not be a straight shot down. We will work through a very choppy down trend shifting from one trading range after another.

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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