Demand For Oil Rises Inexorably
By Paul Homewood
There’s a couple of interesting stats in today’s article from Ambrose Evans-Pritchard in the Telegraph.
It is commonly asserted that the drop in oil prices in the last year has been much due to falling demand, as Chinese growth slows. As AEP points out, this is not the case:
While there are signs that oil production may be starting to drop, it seems that demand is only going one way:
On the other side of the ledger, Chinese oil demand is booming. Barclays said it has jumped by 600,000 b/d over the past year, double the previous growth rate even after stripping out strategic storage. The country has added 20m cars to its national fleet in 12 months.
The paradox of the oil market is that a glut disguises the tightest balance of supply and demand in modern peacetime history.
It is a fact that commodity markets tend to swing from one extreme to another. Low oil prices force the closure of uneconomic fields, whilst discouraging new investment. As a consequence, supply starts to get tight again, prices rise, investment piles in, and we end up going round the same circle again.
But underpinning all of this is ever growing demand.