Oils Bleak Outlook – US-FOREX.US
Are the oil bulls vindicated? The Paris-based International Energy Agency was the latest barrel counter to raise global demand forecasts for 2009 and 2010 on Wednesday, to 83.9 million barrels a day this year and 85.3 million barrels a day next year. Although these followed more bearish predictions for 2009 from the United States’ Energy Information Administration and the Organization of Petroleum-Exporting Countries, all three institutions see demand in 2010 increasing by 500,000 to 900,000 barrels per day.A real rebound in demand might be further off than expected, however. The IEA cited improved demand from China-and other countries outside of the Organization for Economic Cooperation and Development-as the main reason for hiking its forecasts, with Chinese demand expected to grow by 2.8% this year and 4% this year. But even though China’s economy is growing at a relatively healthy rate, especially when compared with the shrinking economies of the West, there are doubts over whether a true “decoupling” can succeed for the export-driven country.”I wonder, with developed economies not consuming, where all those goods that those developing economies make are going to be sold to,” said Simon Wardell, an analyst with IHS Global Insight. He said that the IEA’s expectations for 2010 looked “a little high,” and expected forecasts to be cut down the line.Oil prices firmed up slightly during afternoon trading in Europe, with Brent crude up 81 cents, to 72.85 per barrel, while West Texas Intermediate oil rose 40 cents, to 69.85 per barrel. Analysts think oil is overvalued relative to the fundamentals of the oil market, with persistently weak demand and high inventories pointing to strong potential for a price correction; at the same time, however, speculative investors are giving oil prices support by betting on economic recovery in tandem with other financial markets.”The overall picture is quite bleak,” said Eugen Weinberg, an analyst with Commerzbank. He said that even though Chinese demand could still turn out to be surprisingly positive, whether driven by short-term re-stocking or long-term factors, there was still a lot of uncertainty going into 2010. Oil inventories were still high, which would in normal times require a cut in supplies from OPEC, but Weinberg said the cartel would face a big blow to its credibility if it was forced to make such an about-face.