Given that oil is down 3.5% today, it’s worth highlighting the bull case that even a modest US recovery could be very supportive for pricing.
Given continued growth from developing countries, and demand from developed countries turning a corner, any recovery scenario is likely to be accompanied by firm oil prices.
The chart below shows that US petroleum inventories have started to fall.
US demand is also likely to track the ISM manufacturing index upward in any rebound scenario.
China, and most of the developing world, continues to consume larger quantities as well. In fact, developing countries are leading the world recovery in oil demand.
Goldman: However, while US total petroleum demand has begun to recover, the emerging market countries remain the centre of fundamental strength. Moreover, while it used to be the case that the emerging market countries provided high growth but a low overall level of demand, it has now become the case that the demand from these emerging markets has grown to levels that approach or even rival those in OECD countries. For example, July Chinese distillate demand was just above 3.0 million b/d, approaching last week’s 3.4 million b/d of distillate demand in the United States. Further, Chinese total petroleum demand…
With the IEA’s 2010 demand forecast now just 800 thousand b/d below the record levels of 2007, we continue to expect that the supply-side constraints that pushed oil prices well over $100/bbl in 2008 will resurface in 2010, and we maintain our end of 2010 WTI price forecast of $95/bbl.
(Charts and excerpt via Goldman Sachs, “Energy Weekly”, 18 September 2009)
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