A Bullish Backdrop for Energy Prices

by: Prieur du Plessis

BCA Research, in a short report on energy prices, said: “Tightening efforts in China have had virtually no impact on energy demand, as crude oil imports remain in a strong uptrend as the country transitions to a ‘car economy.' Furthermore, physical demand for oil has started to draw down energy inventories in the OECD countries despite an increase in OPEC production and non-OPEC supply. Vehicle miles traveled in the U.S. are growing robustly and sales of SUVs and light trucks have reaccelerated, which point to increased fuel consumption. This means that refiners should be able to ‘pass through’ crude oil price increases.”

As argued before, energy price increases have a self-limiting aspect. However, according to BCA Research, we are still far from a choke point. “Global energy consumption as a share of GDP remains well below the 2008 high. In the U.S, the bill for oil consumption as a share of GDP is about 40% below the same measure in 2008. Low natural gas prices have helped moderate the overall U.S. energy bill even further. After accounting for NG consumption, the cost of energy as a share of GDP is about 25% below the levels that prevailed during the 2005-2007 period, and less than half of the 2008 riot point.”

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Source: BCA Research, February 1, 2011.