The International Energy Agency seems to have caught on to what everyone else already knows: demand for oil is moving up. The IEA’s new forecast may still be off in terms of how much crude oil the world will need in the next year.
According to The Wall Street Journal, “The Paris-based agency said in its closely watched monthly survey that global oil demand would fall by 2.9% to 83.3 million barrels a day this year, 2.5 million barrels a day less than in 2008.”
Even though the IEA survey is based on looking at demand in 30 countries, oil is trading as if demand is rising and not simply falling less than previously estimated. Some analysts believe that the jump in crude prices from $35 in the first quarter to $71 today is based largely on speculation. That would give speculators the power to double prices while demand is still slack. It is possible, but unlikely.
Oil prices may be going up because of an economic recovery in China and India. They may be rising based on data that the recession in the US will end in the first quarter. They may be up because as the head of BP (BP) said earlier this week, major producers both national and corporate, have cut back on exploration.
“Speculation” appears to be in the process of pushing crude back toward $100. If that happens, the market for oil will almost certainly self-correct. Rising fuel prices will have undermined the worldwide economic recovery and demand will probably fall sharply. The speculators will then bet on the down side and can trade crude back toward $30.
Douglas A. McIntyre
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