There is this notion put forth by the media that a decline in global oil demand caused the huge drop in the price of oil. Ironically, global oil demand is higher than ever… that is, according to the IEA – International Energy Agency.
Not only did the world consume the most oil it had ever in the third quarter of 2014, it was 600,000 barrels per day more than it did in the same period last year. In Q3
2013, global oil demand was 92.5 million barrels per day (mbd), compared to 93.1 mbd in Q3 2014:
As we can see from the chart, global oil demand was only 90.6 mbd in the first quarter of 2013, increased 1 mbd in Q1 2014 to 91.6 mbd and then jumped up to 93.1 mbd in Q3 2014. I don’t see any falling demand here.
Now, if we go back to the 2008 collapse in the price of oil from $148 down to $30, it did occur on the back of falling world oil demand. In the first quarter of 2008, global oil demand was 87.4 mbd, but just three-quarters later, it declined 2 mbd to 85.4 mbd:
Furthermore, global oil demand was down 1.9 mbd in a year’s time from 87.2 mbd in Q4 2007, compared to 85.4 mbd in Q4 2008. Thus, the fall in the price of oil did take place as world oil demand declined significantly.
On the other hand, global oil demand is forecasted to increase from 92.8 mbd in Q4 2013 to 93.5 mbd in Q4 2014. So… what gives?? How can the price of oil fall as demand increases??
Well, that’s a good question. I believe the fall in the price of oil is due to a DECLINE OF EXPECTED DEMAND on top of INCREASED SUPPLY. In their May 2014 OMR Report, the IEA forecasted that global oil demand would be 93.5 mbd in Q3 and 94 mbd in Q4. Unfortunately, demand is 400,000-500,000 barrels per day less than what was forecasted.
You see, it doesn’t take much to disrupt the balance and price. However, as we can see, actual global oil demand is higher not lower than what took place during 2008 when overall demand fell 2 mbd.
Did the U.S. Purposely Destroy Global Oil Demand?
There are many opinions as to why the price of oil has fallen more than 50% in the past four months. Some believe it’s the Saudi’s and the U.S. working together to destroy Russia, while others believe it’s the Saudi’s trying to kill the U.S. Shale Oil Industry. And then we have the media who attributes the huge fall in the price of oil due to weakening demand as economic activity falls.
I actually believe the fall in EXPECTED OIL DEMAND is due to the U.S. instigating sanctions on Russia. Let me explain. Sanctions on Russia really began to have an impact in the beginning of the second quarter of 2014. According to the article, U.S. Sanctions On Russia Begin To Bite:
Russian markets took another knock Friday as sanctions imposed by the U.S. over the annexation of Crimea began to hit oligarchs and their businesses.
Moscow’s MICEX index fell more than 2% — taking its losses for the year to 14%. The ruble was steady, after dipping early in the day, but has still lost about 10% since the start of the year.
And President Obama warned Moscow the U.S. would target key sectors of the economy if Russia escalates the crisis in Ukraine.
Then in the third quarter, economic activity continued to soften… Russia’s Economic Growth Slows For A Third Quarter:
MOSCOW—Russia’s annual economic growth continued to slow in the third quarter, as gross domestic product added 0.7% compared to the same period of 2013, the Federal Statistics Service preliminary data showed Thursday.
Russia is on track to post its weakest economic growth since 2000, the first year Vladimir Putin was president, excluding the year 2009 when the economy contracted under the burden of the global financial crisis. Massive capital flight on the back of Western sanctions and a recent decline in oil prices pose additional headwinds for the commodity-dependent economy.
Not only has Russia’s economy suffered, so have countries in the European Union that were dependent on trade with Russia. According to the article, Eurozone Growth To Slow As Germany And France Falter:
The eurozone economy will grow more slowly than expected during the rest of this year as global conflicts continue to undermine business confidence, Europe’s largest central bank has warned.
…. It said conflicts in Ukraine and elsewhere – and European sanctions against Russia – were also affecting corporate sentiment, undermining the growth predicted for the rest of 2014.
If Russia and the European countries are experiencing a weakening of economic activity… how