Oil Consumption Forecast Lowered

[Fredledingue]

Finaly we got to the point where too high prices is going to lower demand.

The Energy Department, in a monthly report, indicated that high prices are cutting oil consumption more than expected in the industrialized world. Consumption is now expected to fall by 240,000 barrels a day in 2008; last month, the department forecast consumption would be unchanged from 2007 levels.

That report calmed a market that earlier sent oil up more than $3 on a projection by the International Energy Agency that said global demand will continue to rise, especially in China.

Light, sweet crude for July delivery fell $3.04 to settle at $131.31 a barrel on the New York Mercantile Exchange.

A weekly report from MasterCard offered additional evidence that high prices are cutting gas consumption: MasterCard's SpendingPulse survey found that demand for gasoline fell 3.8 percent last week compared to the same week last year, and is off 5.2 percent, on average, over the last four weeks compared to the same period of 2007.

....

Meanwhile, the IEA, in its own monthly report, cut its demand growth forecasts, projecting that global demand for petroleum products such as gasoline, diesel and heating oil will grow by 0.9 percent, or 800,000 barrels a day, in 2008. That's down from the 1.2 percent, or 1 million barrels, the IEA forecast earlier this year.

However, the IEA, an energy adviser to Western industrialized nations, also said demand for fuel for reconstruction work in the aftermath of May's earthquake will boost Chinese oil demand by 5.5 percent this year, a slightly higher forecast than in previous reports.

source

IMO, in China the earth quake will lower consumption rather than increasing it.
Yes, they may need fuel for reconstruction, but the economy will take a hit and less cars will drive on devastated roads.
China's economy is not as strong as to deploy huge reconstruction projects without bearing a burden on the economy.

Also if oil consumption is lower in the West I don't see why it shouldn't be so in the developing world.

I may be wrong of course.

[rachael24]

Thats an interesting article...but I agree with you. I think the earthquake will lower consumption as well. I guess we have to see how it plays out!

[Fredledingue]

This is a sentence I read everyday since oil passed $90:

Many investors buy commodities such as oil as a hedge against inflation when the dollar falls.

That's a sign that the market reflexes are stupid and that "oil prices rise are unjustified" as the Saudi minister was saying.

The problem with bubbles is that everybody put their money on the same things at the same time and sell other same things at the same time as well.

There always has been up and down in inventories and oil demand has always been on the rise since WW2. Today for some reason we get a frenzy on crude futures as if oil will be a rare thing soon while demand from India and China will keep booming off the charts.

That's not going to happen.
Economies have autoregulating safeguards. If the price of one product rises too much then demand falls, simply because poeple can't pay for it anymore.

And, no the economic developement is not based on the ability of burning more petroleum fuels.
The most advandced way of transportation in our civilisation is not the car, but high speed trains on electrified lines (TGV, MagLev etc). And using electricity produced by non fossil fuels of course.

IMO, traffic jams alone should reduce gas consumption in Asia and other developing countries which can't follow up with building roads.

[Ray The Money Man]

Any pull back in oil is temporary. The 20 year Infrastructure "Super Cycle" will push Oil, Coal and any other Energy prices higher. This is only the beginning. Oil is cheap! LOL

[Novice Investing]

This is only the beginning

Ray The Money Man:

Would you mind giving some backup to your statement? I've heard similar statements in the past concerning dotcoms, housing. Do you think this time is different? I don't think so.

[Airelon]

In the short term, oil may drop.

A little.

But the world has to figure out what they want to do about China and India.

1/3 of the human beings live there, and they aren't using hardly any oil. They've only begun, recently, to develop their infrastructure. Which needs oil. Roads need oil. Factories need oil. Power plants need oil. New homes need oil. I won't even go near the automobile situation.

I was listening via the web, Frontline Ltd.'s (FRO) last shareholder presentation. They had an interesting graph by country, and the % oil of the market they represent. It was shocking how high the United States was, compared to say, India.

I'll try and hunt the graph up. But considering the room for growth they have with their infrastructure? The world HAS to figure out, and extremely quickly what they are going to do about satisfying that appetite. Because it takes about 20 years for newly discovered oil fields to start making a dent.

Edit: I did find this one, which I find interesting:

[Airelon]

Sometimes people in the military talk about 'the facts on the ground'. When it comes to oil demand I always tell people to look to the people involved in delivering oil. The people that are getting oil to the people who have already bought it. That'll give you the 'facts on the ground'.

Look at the oil shippers. FRO. SFL. GMR. Their profits rise and fall, not with the price of oil. But with the demand for oil. With the shippers - it's all about the spot rate. There are two ways a shipper makes money. Leased charters, and the spot rate. Basically, a leased vehicle is a ship that has a contract on it for a specific amount of time, and a specific amount of money. But the spot rate is the fluctuating rate for using a ship. The premium getting charged for getting the oil to consumers, right at the moment.

And lately - the spot rate has been steadily increasing. FRO's price hasn't been rising because of the price of oil has been increasing. It's been increasing because they're making more cash because the spot rate and the demand is increasing.

That's the facts on the ground.

[Fredledingue]

Thanks for the chart Airelon,
But what I can see is that neither shipping spot rate nor oil prices are consistant with emerging economy growing demand.
Sure this demand is growing but oil prices has been growing much faster than that and spot rate has got ups and downs.
The emerging economy demand has been growing steadily and smoothly while oil prices have spiked violently.
IMO, higher oil prices (which isn't always higher gas prices at the pump for everybody in the world) will affect demand by creating a trend reversal, lower demand or at least stabilized demand starting from now.
As posted earlier some large countries have a subsidied gas policy. Malaysia and India have only recently increased oil prices to new realities.
And other countries should follow. Those who sell gas at market price face growing strikes (Spain, France, Argentina, India etc).
I have serious doubts about the ability of developing countries to keep up this pace in both economic growth and oil consumption. Sooner or later one should stop the other.
Then if oil prices don't fall in the long term, everybody will start thinking about alternative energies. You ca argue that they don't exist yet as viable alternatives. I'll argue that we never realy tried them.
That's for the long term of course, but the long term comes quickly...