Despite the price fall, a well-known bull still sees a tight market

With crude markets down anywhere from $20/b to $30/b over the last weeks–depending on where you start to measure–it’s always interesting to see what the rock-hard bulls at Barclays Capital have to say about the market.

Barclays has been bullish on the fundamentals of oil for several years, seeing worldwide demand growth and an inability of non-OPEC production to rise to a level that won’t call for OPEC to need to fire most of its guns to keep the market in balance.

On the same day that the International Energy Agency came out with a fairly strong projection about next year’s growth in global demand, and on a day when oil prices came roaring back with a more than $3 gain even as equities slid anew, Barclays’ bullish voice added to the chorus that maybe the supply/demand fundamentals can propel prices higher even as stock markets swoon.

The most bullish summation by Barclays of the recent spate of data–not just from the IEA, but also from the US’ Energy Information Administration–is of what has happened with global stocks and spare capacity. It was those fear of their tightening in the face of the loss of Libyan output that drove the IEA to release strategic stocks several weeks ago.

“With OPEC output pegged above 30 million b/d and Saudi output approaching 10 million b/d, effective spare capacity is now running at very low levels indeed,” the Barclays report said.

On top of that, Barclays highlights that OECD industry stocks dropped by about 12 million barrels in June; historical five-year average trends usually show a build of about 2 million barrels worldwide. “Thus, the surplus to the five-year average by June was under 5 mb, and with preliminary July data pointing to lower than usual seasonal builds, that surplus is all but gone, highlighting a significant tightening in the market.”

Of course, all bullish forecasts in the first half of 2008 took a nasty hit when global demand collapsed in the second half of the year. Barclays remains unconcerned. “Overall, the reports continue to paint a constructive picture for the oil market and while warning about possible slowdowns, do not point to a high probability of macroeconomic discontinuities or a catastrophic oil demand scenario like in 2008, which would warrant an OECD demand fall of well over 1 million b/d,” the bank said, in summing up its forecast.

Platts