Oil traders appear blind to the fact that developed nations’ oil consumption growth has most likely ended forever, given that oil prices remain pretty high historically speaking.
Some oil bulls might be betting that a global recovery will generate sufficient emerging-markets oil demand to make up for the developed world consumption growth and increase total global demand at the same time.
Let’s just hope that substantial U.S. oil consumption growth isn’t part of their equation. That’s because there’s increasing evidence that the U.S. economy has already made a critical shift towards spending less on fuel, as recently highlighted in Stephen Schork’s Schork Report, via Alphaville. As he puts it: oil demand has been “wiped off the map” and it’s never coming back.
Mr. Schork’s chart below shows how at similar gasoline prices in the past (in orange, look at 2005 – 2007 vs. 2009), Americans used to spend a higher percentage of income on gas (Look at PCE Gasoline/Nondurable Goods, the white circles).
Thus a sharply lower percentage of expenditure, as just happened, isn’t simply due to the fact that gas prices fell since early 2008. It’s also likely caused by Americans using less gas.
Schork: “Without this end demand for product, crude prices are fundamentally crippled on the upper bound. Whether the bulls realise that (and yesterday’s price action indicates they don’t) is another matter. More to the point, the bulls probably do realise how bad the fundamentals are for crude oil, but they probably just don’t care.”
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