In its latest monthly report, the IEA raised its outlook for growth of oil demand in 2012 by 0.8 million barrels per day to 90 mbpd. Rising demand from emerging economies particularly China will be offsetting any declines in consumption seen in Europe or the US. In North America, the decline trend seems to be abating according to the agency.
Last month, easing geopolitical tensions (remember Iran) combined with poor economic data from the US and Europe triggered a fall in oil prices. However, the IEA is still warning about Iran:
There is no room for complacency: the path of market fundamentals for the rest of the year remains highly uncertain and geopolitical risks will likely continue to keep prices high.
I personally don’t believe Iran will just sit there doing nothing with 3.3 mpbd of oil production. The IEA warned that tracking Iranian exports has become increasingly difficult following reports that the National Iranian Tanker Company had ordered its vessels to shut-off their communication beacons. I believe that Iran will do what it takes to export its oil. With so much money on the line, the sanctions will be bypassed one way or another.
There’s a lot of action on our plate this year: Europe, Elections and the sanctions on Iranian oil starting in July. I hope you have some dry powder to capitalize on the downside which may or may not materialize. No one knows what’s coming and anyone who claims to know where the market is going is only lying to himself. But in the medium term, any shocks to the price of oil and to oil stocks will be temporary because demand will recover just like in 2008 and 2009. Oil fuels the global economy and until an alternative cheap and abundant source of energy is found, there will be no other outcome.
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Have a Great Weekend!