Projected long term oil demand falls by 10 million barrels in just one year

petrol_consumption22Why am i talking about oil demand projection?

Because demand projection influence price, and price of oil influence the price of almost every other goods and service.

Hovering around USD 55 (as of Nov 20 2008) the price of oil may look really low, but a bit of look of history shows that this is the same level of oil price in early 2007, and it took less than 18 months for oil price to reach its peak level.

Is it possible that we will see the same craziness of oil price movement? Quite possible

How?

By having demand projection that runs wild and allowing speculators to ride on the demand projection.

Real consumers of oil use demand projection to determine the price their willing to hedge their oil supply, and Speculators of oil also use demand projection to further pony up the price. I argue on a previous post that the price increase in mid 2008 has been driven mostly by speculators. Who justify their price by waving the demand projection for 2020 and beyond. If we want to keep oil price at sane level, for both producer and consumer, we need to scrutinize the demand projection. That’s why we have this post.

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We have been talking about the wrong type of oil inventory

By Sendy Filemon, 25 October 2008

When one think about speculating on commodities, products with physical form, one thinks about hoarding.
Popular example in an Asian country would be, rice hoarding, speculators buys rice, hoard it in some warehouse, create supply gap in the market, prices starts increasing, consumer start to perceive the increase in price, consumers join hoarding rice, price gets even higher, then the original speculator release his stock. (For readers who don’t live on such country, please exchange “rice” with any other staple food in your country).

This is how the speculator makes his killing, creating false supply and demand gap, leveraging market sentiment to create a snowball effect, and reap the profit when the snowball gets big enough.
To execute this type of speculation effectively, the speculator would need large amount of capital and physical space.

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