Oil Bull Market on Hold, Demand Should Keep Growing

A few months back we had people calling for $150 and $200 oil, but now many people are saying $50 or $60 is not only possible, but likely. What a difference hedge fund liquidations and a recession can make. Is the oil bull market over, or just put on hold due to an impending global recession? My best guess is the latter.

Consider the charts below. They show crude oil consumption for this decade, with current 2009 estimates included. The first one shows oil consumption in the U.S. which isn't very impressive and screams lower prices. After all, we represent 5% of the world's population but consume 25% of the world's oil.

Not so fast though. Here is a chart of oil consumption worldwide. It shows a much different picture.

Will the current recession result in a reversal of this graph? Probably not to any large degree. The line will flatten surely, and perhaps even dip slightly, but by the time that happens any global recession will be mostly over and demand growth will be set to resume alongside economic growth. Long term I still think the oil bull market remains intact until we truly start replacing large amounts of oil consumption with alternative fuels.

Disclosure: None

Comments

[NumbersGuy:]

So subtracting out the US, it looks like demand worldwide grew by 1 million barrels per day per year in 08 and is forecast to do the same in 2009. How reliable, typicallly, is EIA data?

2008 Oct 22 09:40 AM

[fakir:]

mate a lot of it was coming from asia ex-china and china. Ex-China is slowing fast and so is China thats based on anecdotal evidence of my visits down there. The lower graph needs to be updated Asia is not going to pull the world out of a recession. Other than China we will see a bit of the miracle unravel , most of it was built on cheap money which is going going gone.

2008 Oct 22 09:43 AM

[Ferdinand E...:]

That lower graph looks fine to me, and I hope that our political masters do not come to the conclusion that it needs any updating.

2008 Oct 22 09:52 AM

[OilyGasMiner:]

Credit and liquidity need to be fixed in order for anything to go back
up. This bear market will last a while... could be 2 years. Once the
financial institutions get their cash, they can free up some credit
which can help businesses. Businesses will spend, hire, and hopefully
stabilize unemployment in time. Common folks will need some time to
save up for their new car or a home due to tighter credit
requirements. So dunno how long everything will take to improve, but
only time can tell.

2008 Oct 22 10:00 AM

[Pipo:]

Jim Rogers told in a video interview that he was buying energy again. 40 to 50% corrections in bull markets are the norm.

He gave a great video interview available at:

jimrogers-investments....

2008 Oct 22 11:34 AM

[endoftheworld:]

demand is a primarily a function of population growth (positive influence) & technology (negative influence)... short term elasticity not withstanding, you cannot have long term population growth without increasing demand which drives significant captial outlays into driving higher productivity out of capex or investments into alternative energy .. right now each incremental dollar invested into oil is marginally less productive than the last, but still dollar positive... alternative energy is only barely making a dent... the secular growth story for the next few decades will really be about energy & the technology to make its use efficient

2008 Oct 22 12:55 PM

[Urbane Gori...:]

Jim Rogers has an exemplary track record....But for normal folk like us, we can't take the beating he has suffered in China and Commodities that he has this last year. If you listen to his commentary... And he is on the tube a lot lately ... Not sure why....But even he will tell you 'Ah am the world's worst market timer!'.... Believe him..

I am a serious commodity investor. There is no doubt in my mind that oil, gas, nuclear, coal, iron, copper and the associated supports; shipping, rails, mechanical... etc will be the growth leaders in the future. And I believe that this is true whether or not China ever pokes it's head over the walls of the Forbidden City..

But! Still use tight stops. It's better to get stopped out and repurchase than own a great company like CHK drop to 25% of it's value.

jegan ;-)

2008 Oct 22 01:26 PM

[Alex_G:]

Chad,

Your second chart is very old. New estimates have 09 consumption under 84mm barrels per day. EIA data is almost always revised by a decent margin in the following months.

Alex

2008 Oct 22 11:00 PM