Stock markets are again in a bearish trend after the Dow Jones industrial average closed down 1.2 percent Tuesday. Oil prices could continue to fall on the coat tails of equity markets and the trend suggests this might into the New Year.
Oil prices have fallen about 60 percent since the start of this year and more than 70 percent since their record peak above $147 in July as demand from the United States, China, Japan and other industrialized nations has fallen.
The Organization of the Petroleum Exporting Countries (OPEC) has already announced cuts of around 5 percent in global oil supplies and may call an emergency meeting before March if prices extend their near $110-per-barrel slide since summer, OPEC’s President Chakib Khelil said Tuesday.
Oil was buoyed Wednesday by a dip in the dollar, which edged down against the yen, pressured by light selling from Japanese exporters after dismal U.S. growth and housing data suggested a prolonged recession ahead.
Data for release later Wednesday was also expected to show distillate stocks rose 200,000 barrels last week, while gasoline was seen up 500,000 barrels, a Reuters poll showed.
The pace of global oil demand growth should increase next year as rising consumption in emerging markets outweighs declines in developed nations hard hit by the high fuel costs and mounting economic problems.
Worldwide demand should rise by 950,000 barrels per day (bpd) next year to 87.5 million bpd, according to a Reuters poll of 10 analysts, banks, and industry groups, up from projected growth of 760,000 bpd this year.
We think demand will be slightly lower in Organization for Economic Co-operation and Development (OECD) countries, but substantially higher in the developing world.
Soaring fuel prices, as well as the wider economic crisis, has forced consumers in developed economies to adjust their habits, with motorists in the top consumer the US even cutting back their petrol-guzzling ways during the peak summer driving season.
Oil prices have dropped to $115 a barrel, off the July 11 record over $147, on growing signs of weakening demand in the US and Europe.
Analysts said the OECD demand could fall further if the European and US economic problems continue.
“I suspect if that if we continue to get bearish economic news, then you are going to keep revising the OECD demand forecasts down,” said Jan Stuart, economist at UBS.
Consumption from emerging economies such as China, which ignited a six-year rally in commodities that sent oil up sevenfold at its peak, should offset OECD losses with gains of 1.2m bpd to a total of 39.2m bpd in next year, the poll forecast.
“We can’t find any single year of negative emerging market demand growth,” said Francisco Blanch, head of global commodities research at Merrill Lynch.
“While we have started to see some demand growth curtailed in OECD economies, the economic fundamentals in China and other emerging markets support oil at more than $100 a barrel into 2009.”
Some analysts say demand from Asia may be slowing as China will no longer be stockpiling fuel ahead of the Olympics and high fuel prices prompt some countries to ease up on fuel subsidies that kept prices low and supported consumption. Use of oil products as a short-term fuel to boost power generation may be easing as well.
“A tipping point appears to have been reached in demand in numerous Asian markets,” said Lehman Brothers in a report.
“One-off increases in demand due to the Olympics and power generation shortfalls are set to moderate beyond the summer months.”
Other analysts say demand from China may dip slightly but should remain relatively robust.