Oil prices are about where they were two weeks ago when I wrote the previous Saturday report, with the Nymex WTI futures contract at $97.84 per barrel and Brent going for $114.28. The upbeat jobs report caused crude to trade higher than it would have had the result been less bullish. Otherwise, traders were said to be "eyeing [Iran's] simmering tensions with the West over Tehran's nuclear program." There is no reason to change the alarm level.
Oil Alarm Level — Orange
Once again, the market supply & demand fundamentals are being neglected. Surely it must be the case that Europe's oil demand is falling, although reliable, timely data is hard to get. However, we've got a good handle on China.
SINGAPORE, Jan. 25, 2012 — China's apparent oil demand in December rose 0.7% year on year to 41.02 million metric ton (mt), or an average 9.69 million barrels per day (b/d), a Platts analysis of recent statistics released by the Chinese government showed.
"But even with that relatively slow rate of growth at the end of the year, the actual demand for December was the highest daily rate the country's oil demand has ever reached," said Calvin Lee, Platts Senior Writer for China.
Yet, the oil demand growth in December of 0.7% was the second time last year that the rate of increase was below 1%. On a quarterly basis, oil demand growth of 1.6% in the fourth quarter was the lowest among all four quarters in 2011.
The drop-off in oil demand growth in the second half of the year pulled the annual growth rate down to 6.1% in 2011, from 11.3% in 2010.
December's apparent oil demand was a tad more than the previous all-time high of 40.73 million mt, or 9.62 million b/d, recorded in the same month a year ago, when the country was besieged by a diesel shortage.
For the whole year, China's apparent oil demand was at 460.65 million mt, or an average 9.25 million b/d, 6.1% more than the previous year.
China's demand growth is slowing although they set a single month record of 9.69 million b/d in December. Demand growth was "only" 6.1% in 2011 compared with 11.3% in 2010. I predict that China's oil demand will grow 1-3% this year, but it won't shrink. Once China has laid claim to a barrel of the world's oil, they won't easily give it up. They'll build additional storage or resort to more desperate measures to maintain market share.
The bigger story right now is in the United States. You have to go all the way back to April, 1999 to find a week in which oil demand was lower than it was in the last week of January, 2012, according to EIA data. Americans consumed 17,653 million barrels per day that week. I'm sure that's due in part to the mild winter, but that's still an impressively low number. (The week before was 19,241, which might be an anomaly or a misprint in the data because the two previous weeks were in the 17 millions too.)
U.S. oil demand (products supplied) is volatile, but the downward trend since 2007 is clear. Source
We might ask how it's possible for the private sector to be creating so many jobs at a time when oil demand is setting record lows for the 21st century.
I believe that 2012 demand growth in emerging markets will be offset by shrinking demand in the OECD (Europe, Japan, the U.S). As I said, I believe China's demand growth will fall off sharply as it did year-over-year in 2011. Unless there is a supply shock of some sort, I expect oil prices to stabilize at or below the current level. I must qualify that last remark because so many factors influence oil prices outside of supply & demand. We should also remember that the Saudi target price is now $100/barrel.
What will prices be in two weeks? I suspect there will be little change.
Your question near the end was exactly what I was thinking of as I was reading through. How can the jobs report, apparently, be so good when oil consumption is falling? I wonder what the answer is. I checked shadowstats and they had the overall unemployment rate rising. I checked Gallup and they have the headline rate edging up, not down. Here is the Gallup link:
http://www.gallup.com/poll/152432/Unemployment-January.aspx
On oil prices, it looks like Brent went up as WTI went down (in the last days of the week), increasing the spread, which had dipped below $10, at one point in the last week or two. It's now over $16.
Posted by: Mike Roberts | 02/04/2012 at 05:38 PM