Archive for April, 2014

23
Apr
14

Is Oil in Another Bubble?

With record high prices of gas at the pumps of late in North America, much like before the 2008 crisis, there seems to be a disconnect between oil futures and the actual demand. Below are some indicators that oil and petroleum is due for a long awaited correction due to economic conditions:

– India’s Diesel consumption, which accounts for over 40 percent of local fuel sales, declined 1 percent in the year, its first fall in more than a decade
– Demand for fuel oil in the U.S. fell to an average of 154,000 barrels per day (bpd) for the week ended April 11, the lowest level since the US Energy Information Administration (EIA) started tracking the data in 1991
– Total U.S. petroleum deliveries (a measure of demand) were down in Q1 of this year (compared to last year)
– A slowdown in Chinese as well as Global oil demand growth is occurring
– Inventories for Crude Oil in the US have been sky rocketing of late in the world’s top oil consuming nation (United States) are close to exceeding record-highs. This is also occurring in the world’s second biggest economy (China)
– The average American is driving less due to the record high gas prices at the pumps and spending record amounts of their personal expenditures on energy costs

With central banks and world governments focusing on supply side economics (low interest rates, low margin trading requirements for trading as well as mass accumulation of inventories) they have encouraged mass speculation on oil and gas futures much like before the 2008 crisis. Will there be another economic fallout due to these imbalances? Is it deja vu?