Crude collapse pauses but demand destruction continues

Bouncing Back From the Brink

Global oil markets got a respite from the massive demand and price destruction we have seen in recent weeks, but despite the rounding stochastic and the chance for a short term technical bottom, it is clear that we are not out of the woods just yet. The market is grasping at hopes that European leaders will somehow come to the rescue for the struggling economies and find a plan to save Spain and the rest of the Euro-zone.

Let’s face it the market is convinced that just around the corner we will see a massive global injection of printed money. Even Australia, which previously raised rates, has lowered them and while some expected Australia to do more, we are now waiting to find out if Europe can do enough. Yesterday of course the market bet that the so call master plan might save the global economy from its deflationary downward spin. We had a bounce back in the beleaguered Euro on hopes that Euro leaders discussed plans for closer banking cooperation throughout the member countries.  There is talk that counties like Greece and Spain may give up some of their economic sovereignty in return for some type of Euro-bond that would allow those countries to borrow at rates that were better than the current loan shark rates that they have to pay.

For oil this means that we have found a short term floor until the market gets disappointed again. Reuters News reported that, “Oil prices near $100 a barrel are still a threat to a slowing global economy that is likely to consume less fuel than the International Energy Agency (IEA) had forecast, the IEA's executive director said on Tuesday. Brent crude this week dropped to a 16-month low below $96 a barrel before recovering to around $99, well off a peak of over $128 in March but not low enough to stimulate rather than slow growth, Maria van der Hoeven said. "Let’s be honest, we still confront a situation of near triple digit oil prices," van der Hoeven told reporters at news conference during a conference in the Malaysian capital."This is placing a huge burden on budgets and that's contributing to the risk of further economic slowdown."

Bloomberg News reported that natural gas consumption may rise 17% by 2017 from last year as demand surges in Asia and the U.S., according to the International Energy Agency. China’s use of the fuel will double while Europe’s will remain below the level of 2010, it said. Demand worldwide will climb by 576 billion cubic meters to 3.937 trillion, the Paris-based adviser to oil-consuming nations said today in its first Medium-Term Gas Market Report. That’s an average increase of 2.7% a year, which is similar to the growth during the last decade, the e-mailed report showed. Emerging nations will account for 69% of the gain. 

Bloomberg also reported that, “The outlook for unconventional gas production in Europe is “bleak” because of growing opposition to drilling technology that has boosted output in North America, according to the International Energy Agency. The production of unconventional gas, which represented 16% of global production of the fuel in 2011, will continue to expand, led by the U.S., the Paris-based agency said in its medium-term gas market report today. Europe and other regions face challenges including lack of infrastructure and environmental concerns in Europe," the IEA said.

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.

 

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