Best of the Week
Most Popular
1.Stock Market Crash and Recession Indicator Warning: Extreme Danger Ahead - Harry_Dent
2. Is This How World War III Begins, In Almost Complete Silence? - Jeff_Berwick
3.Trump Wins 2nd Presidential Debate, Betfair Betting Markets Odds Bounce - Nadeem_Walayat
4.Why Krugman, Roubini, Rogoff And Buffett Dislike Gold - GoldCore
5.End of SPX Stock Market Correction Nears - Tony_Caldaro
6.Get Ready for the Future - Exponential Machine Intelligence Mega-trend towards Singularity - Nadeem_Walayat
7.US Housing Market Bubble II – It’s Happening Again! - Andy_Sutton
8.FTSE BrExit Stock Market Panic Crash Resolves towards New All Time Highs - Nadeem_Walayat
9.Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - Nadeem_Walayat
10.Gold’s, Miners’ Stops Run - Zeal_LLC
Last 7 days
The Current Message of Yield Curves: Inflation or Deflation? - 25th Oct 16
Broken Central Banks: 4 Quick Pix - 25th Oct 16
Government Stimulus is an Oxymoron, Debt to GDP - 25th Oct 16
Where Will Crude Oil Price Head Next? - 25th Oct 16
Diamonds in the Gold and Silver Mining Stocks - 25th Oct 16
Trump’s Gettysburg Address against the New World - 25th Oct 16
This Past Week in Gold - 24th Oct 16
Can Gold Continue To Rise, Since The Usd Is Moving Higher Too? - 24th Oct 16
Why are Americans Avoiding the Stock Markets; Fear or Lack of Money? - 24th Oct 16
The US Is NOT a Low-Tax Jurisdiction - 24th Oct 16
Stocks, Crude Oil and EURUSD Trend Forecasts - 24th Oct 16
Stock Market Another Month to Go? - 24th Oct 16
Large Sell-off in Stock Market Looming - 24th Oct 16
Ungovernability - 24th Oct 16
Stock Market Boredom Before The Storm - 24th Oct 16
Establishment Mainstream Media Elite Buys US Election for Hillary Clinton, Time Running Out for Trump - 23rd Oct 16
Inflation About To Explode Higher - 22nd Oct 16
Still waiting for SPX uptrend to kick off - 22nd Oct 16
Will a Rising US Dollar Crush Gold’s Fledgling Bull? - 22nd Oct 16
Why The Global Economy Will Disintegrate Rapidly Back to Olduvai Gorge - 22nd Oct 16
GLD Bleeds Out; Weekly Gold Update - 22nd Oct 16
Stock Market Investment Success Through the “Investment Rule of 72” - 21st Oct 16
The Final Bottom in Gold - WHEN - 21st Oct 16
Gold Green Lights Upleg - 21st Oct 16
Demand for US Mints Silver Eagles has ‘Returned with a Vengeance’ - 21st Oct 16
Central Bankers Can't Stop The Death Blow Of The Post US Election Recession - 21st Oct 16
The Fortune at the Bottom of the Pyramid: Golden Opportunity for Frontier Asia - 21st Oct 16
Have You Taken These 4 Simple Steps to Improve Your Trading? - 21st Oct 16
The Stock Market is an Accident Waiting to Happen - 20th Oct 16
It's Rally Time for Gold and Silver Equities - 20th Oct 16
Cashless Society – Risks Posed By The War On Cash - 20th Oct 16
China's insane Housing Market Will Tumble and Crash in 2017 - 20th Oct 16
Donald Trump Bounces Going into 3rd and Final US Presidential Election Debate - 20th Oct 16
Attention Please: Phase Two of the Gold and Silver Train Now leaving the Station. All Aboard? - 19th Oct 16
How to Successfully Trade a Stock Market Crash - Black Monday October 19th 1987 - 19th Oct 16
Tesla, Apple and Uber Push Lithium Prices Even Higher - 18th Oct 16
Silver, Debt, and Deficits – From an Election Year Perspective - 18th Oct 16
UK Property Market: Slow Growth Does Not Equate To Decline - 18th Oct 16
Trump Election Victory is in Your Power - 18th Oct 16
Stock Market More to Come! - 18th Oct 16
This Past Week in Gold and Silver - 17th Oct 16
A Falling Stock Market Cannot Be Allowed - Financial Repression Is Now “In-Play”! - 17th Oct 16
Commodities, Forex and Stock Market Trend Forecasts - 17th Oct 16
Stock Market Crash..or No Crash? - 17th Oct 16
A perspective on risk rally – Risks abound but Stock Market is Confident - 17th Oct 16
Bank of England Blames Brexit for Sterling Drop Inflation, Masks QE Money Printing Cause - 17th Oct 16
From Piety to Pride to Pity, America's Racial Divide - 17th Oct 16
Is Obama Juicing US Government Spending To Get Hillary Clinton Elected? - 16th Oct 16
Seek Your Independence: Anything Else Will Destroy You - 16th Oct 16
SNL - US Presidential Debates, 1st, 2nd, VP - Like You've Never Seen them Before! - 16th Oct 16
End of Economic Growth Sparks Wide Discontent - 16th Oct 16

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

LEARN to Trade

Two Culprits in the Oil Demand-Pricing Disconnect

Companies / Crude Oil May 20, 2012 - 07:45 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleDr. Kent Moors writes: As we wait for a "floor" in the price of oil, the pundits continue to talk about declining oil demand in the U.S. and Europe.

But the figures are beginning to tell us something very different – at least on one side of the pond.

The American Petroleum Institute (API) released data today that indicates "petroleum consumption" in the U.S. declined by 0.3% in April from levels one year ago. Meanwhile, gasoline demand actually grew for the third month in a row, although by only some 1%. It had been up 3% in March year-on-year.

Demand for distillates (diesel, low-sulfur content heating oil) also increased.

So where is the decline that everybody wants to talk about?

It turns out to be in jet fuel (high-end kerosene), which was down 3.2%.

Now, the analysts are quick to call the gasoline gain this month "tepid." And they point out that millions are still out of work with unemployment above 8%. What they fail to take into consideration is the overall upward trend in consumption, even with the employment and economic concerns.

The prevailing argument fails to consider that the demand level will accelerate once the economic recovery picks up. If the current environment remains weak, and there are still demand gains in the oil products most directly affecting overall price, what will happen when the recovery returns in earnest?

A "tepid" 1% rise per month is still 12% a year – and that would require considerably more domestic drilling.

That is due to a revolution of sorts in the production landscape.

Imports of crude oil this year are likely to continue declining; reversing what had been an increasing reliance on foreign oil to satisfy need in the American economy. In April, for example, 55.8% of crude used in the U.S. came from exports, down from 61.3% in April of last year.

And according to projections, less than 50% of our requirements will come from imports by as early as 2015, with only 30% needed within 15 years. Those imports would come almost exclusively from Canada.

To put this into perspective, only three years ago, we were expecting that 70% of American requirements would come from foreign countries.

The difference now is the rise in the domestic availability of unconventional oil – shale, tight, heavy, bitumen, oil sands – in volumes that have completely changed the production landscape.

Still, that alters neither the aggregate price (unconventional costs more to produce on average and certainly more to process) nor the demand projections.

Elsewhere, the demand picture is intensifying.

Not in Europe, of course, where a combination of Greek, Spanish, Italian, cross-border banking, German economic concerns, and a rising opposition to austerity measures have combined to depress demand (and spirits).

Neither the North American nor the European markets are determining global prices these days. The developing and industrializing nations are in the driver's seat now. Despite recurring concerns about Chinese or Indian economic expansion, and recent OPEC and International Energy Agency (IEA) revisions in global demand projections, we will still come in this year with a 1.8% gain and an 89-million-barrel -per-day average.

So, if this is the "big picture" (and it is hardly new), why have crude prices in the U.S. declined 15% since their most recent high at the beginning of March? If demand is in fact increasing, albeit slower than the TV talking heads would like, why are prices moving in the opposite direction?

There are two – very different – answers here.

1) Headlines are Telling Us the Wrong Story

First, perceptions of demand moving forward are prone to reading overemphasized deflation concerns into every headline.

  • Greece is without a government (was it that different when they apparently had one?);
  • Spanish banks are under renewed pressure;
  • Germany faces concerns on the prospects for ongoing growth; and,
  • France voted in a socialist president whose plane was hit by lightning almost immediately after (perhaps a divine comment on an election result?)
  • And oh yes, a certain American investment bank lost a few billions riding derivatives in the wrong direction.

But none of this has anything really to do with demand projections in the U.S. or, for that matter, elsewhere in the world.

The European contagion is becoming an isolated situation, at least for now. The decline in the euro against the dollar is actually helping to improve the American export picture for finished products and even services.

As for the JPMorgan mess, it may breathe new life into government proposals for more oversight. Still, this has absolutely nothing to do with oil.

2) Short Sellers Setting Up for Big Gains

Second, and this is what has prompted a longer slide than would have happened otherwise, this has been an excellent opportunity for large short positions to profit from the declining oil price.

Now, there was a brief decline coming anyway, because oil had overheated.

However, given the defensive nature of the current market, the shorts can be ridden longer than usual, and a greater profit can be made than anything that's justified by the actual market specifics. That this also drives down the stock value of companies throughout the energy sector into "oversold" territory merely provides additional incentive to keep those shorts in place.

After all, even if the market would change abruptly, covering the shorts is still much cheaper than it was two weeks ago.

When the run has petered out, these same guys will be on the other end of the transactions pushing the prices up. That's just how this works.

So what's next?

We will continue to experience sluggishness in oil prices until the dust settles, and the profit incentive moves to the other side of the ledger. Then we will see hedging in a different direction, along with a rather quick rebound in prices.

In any case, this is a long-term market, subject to bouts of very short-term volatility.

Nothing happening in Europe or on the trading floor is going to change that.



P.S. By the way, last Friday, Iraisedmy target price for oil – significantly.

But if you missed it, a major event is now just six weeks away that will have profound effects on the market. And oil at this target level is set to have significant effects worldwide – many of which the world is not prepared for. Yet the most significant effect of all – for you, anyway – will be the extraordinary amount of money this situation is likely to create.

Here are my new projections.

Source :

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2016 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife