Where is Crude Oil Price Headed: Autos Comparison and Automotive Automobile Reviews

Where is Crude Oil Price Headed?

An Analysis into Where Crude Prices Are Headed in the Medium & Long TermCrude prices have recently moved in directions that defy traditional demand-supply fundamentals.Crude supply is adequate and global demand is expected to contract further by ~2.5 mbpd in Calendar Year 2009 (IEA estimates) after contracting by 0.3 mbpd in CY08 (IEA estimates). Consequently, spare capacity has bloated to the highest levels in almost a decade, to ~7.0 mbpd (~8.3% of
CY09 global crude demand (IEA estimates)). This increase in spare capacity comes along with high crude and product inventories which are well above their historic ranges, indicating that supply is more than adequate.’Hence, the current price movements of crude bring about a feeling of déjà vu’. In1s h h half of Calendar year 2008, despite increasing spare capacities and low demand growth, crude prices had spiked because of increased speculation, liquidity surplus, refinery capacity shortage and geopolitical risks. I believe crude prices are running up again despite comfortable spare capacity and physical demand yet to exhibit growth. However, compared with the last run-up, crude markets are now more influenced by the liquidity splurge, depreciating dollar, optimism of global recovery, and increased confidence in OPEC’s taquota uota due to higher compliance in the recent past. Demand uptick is clearly the joker of the pack, as any uptick in crude demand may increase optimism in crude markets.Structurally, I am bullish on crude prices as long term demand-supply mismatch is likely to return to the system. However, I believe that crude prices need a breather in short-to-medium-term as it has run up fairly sharply.Consequently, I believe crude prices will find it hard to scale higher over themedium term in line with weak spare capacity fundamentals, end of gasoline season in the US and consequent lower refinery throughput that will create a bulge in crude inventories.

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Where is Crude Oil Price Headed?

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