The Real Rationale Behind Current Supply and Demand for Oil

Has the global oil demand collapsed? US oil imports in October actually surged. Read the EIA provided weekly US oil import data. In the week ending Dec. 19, total US oil imports were 12.780M/day, versus 12.907M/day in the same week a year ago. That’s only a 1.0% drop. Consider the surging oil demand in China, Russia, India, the global oil demand probably sees a slight increase or at least remains flat.

Do not forget Peak Oil. The world’s top ten oil fields are all in steep production declines. Mexico’s Cantarell Oil Field is declining more than 33% a year! According to Matt Simmons, Mexico, our 2nd largest oil supplier, will CEASE to export oil by the end of 2009.
We need to make a distinction between the aberration caused by the credit freeze up, and the real fundamentals of supply and demand. The credit freeze up only has a temporary effect in halting global goods movements and suppressing or delaying demand. It can not last long. Governments around the world are printing fiat money like crazy and injecting huge liquidities to get the credit moving again. There are clear signs it’s starting to work. Banks are NOT in the business to hoard cash. They are in the business of taking in deposits and then lending money out to earn the spread of interest rates. If banks do not resume regular business soon, the whole banking industry will disappear from our society. That is not going to happen.

The real supply and demand is nowhere near a catastrophe. World Bank predicted a 2% drop in international trade next year. MasterCard (MA) reported a 3% y-o-y drop in US gasoline purchases. The US Census Bureau reports a 4.4% increase of goods exports and 3.9% increase of goods imports in October, compared with last year. The scariest number? The Japanese government reported a 26% drop in exports to the USA in a recent month. Well dah?! Japanese count numbers in Japanese yen, the same US$ amount is now 23% lower in yen compared with a year ago. So Japanese export in US$ terms probably dropped a mere 3%. Everyone is shouting “demand destruction” but how many actually dig into the data and scrutinized the facts?

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