Crude and Product Price Rally Overdone?
The seasonally unusual spikes in crude and gasoline accompanied more bullish views of global economic fundamentals, despite shorter term year-end and other inventory effects (some of which have reversed in January). As well, along with gold, energy prices probably participated in the ongoing ‘QE2’ trade. However, January data suggests that (a) US and developed market demand has not (yet) improved beyond the easy comparisons versus prior periods, (b) Chinese consumption appears to have accounted for the December spike, and (d) inventory rebuilding is back in January. This doesn’t derail the underlying oil story – that the demand trajectory of developing economies has reached a tipping point – virtually half of all oil consumption, while developed (OECD) consumption recovers only cyclically (if that). Meanwhile, two offsetting near term forecasts – that nonOPEC supply may only rise by 150-300 kbd this year — a downgrade from earlier estimates by other organizations (but not yet apples-apples), and, if true, Iraq’s late 2010 production reached 2.7 million b/d, the highest since 2000! There’s a lot of wiggle room on both estimates, so stay tuned.