InvestingDaily.com

Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close
FEATURED STRATEGY

Renowned Economist Paints Startling Portrait of the Future

Renowned Economist Paints Startling Portrait of the FutureRenowned economist Dr. Stephen Leeb has predicted the last 5 major market shifts. And he’s just revealed his latest prediction: “A market meltdown will wipe out the savings of millions of Americans.” In his latest report, he details which stocks will come crashing down in the coming months, as well as a select few that could double or even triple in value over the next few years. Get your copy here.

 

Don’t Fall for the Snake Oil on Crude Demand

By Robert Rapier on May 4, 2016

If there’s one narrative that’s been rehashed endlessly in the media, it’s that demand for oil is weakening. Falling demand in China is frequently cited as a harbinger of weakening global demand in the future. This argument was used as a basis for predictions of $20/bbl oil, or of permanently lower oil prices. It is demonstrably wrong, but there are two reasons why people fall for it, in my view.

I’ve previously written about one of these, the misconception that a slowing of demand growth amounts to a fall in demand.

Indeed, demand growth is projected to slow this year, after an above-average increase in 2015. The International Energy Agency expects demand growth to slow to 1.2 million barrels per day (bpd), well behind 2015’s blistering growth of 1.8 million bpd (which isn’t yet reflected in the following graphic):

160504TELglobaldemand

If crude oil demand grows 1.2 million bpd this year as projected instead of 1.8 million bpd as it did last year, then we will still need more oil than we used last year. Demand will still be strengthening rather than weakening, even as the rate of that strengthening slows.

Demand growth of 1.2 million bpd would still exceed the average annual growth rate of 1 million bpd over the last 30 years. That’s a very different scenario from an outright year-over-year decline in demand, which has happened only twice in 30-plus years.

That leads to the second point, which is that very short-term fluctuations in demand are often misinterpreted as long-term phenomena. This is perfectly illustrated by this recent graphic of Chinese crude oil imports:

160504TELchinaimports

Source: Business Insider

If you pay attention to the monthly ups and downs in the data it can be easy to confuse random variation with a trend. In the graphic above, we see a pretty consistent trend in annual demand growth of Chinese crude oil imports. But if we were trying to interpret real-time data in the summer and fall of 2015, we might be fooled into thinking demand was declining.

Indeed, the monthly import totals did decline, and stayed down for four months. But then they spiked to the highest levels ever, and suddenly the rolling 12-month average looked like it has for much of the past decade.   

So, when you hear someone mention “weakening demand” as a bearish factor for oil, just remember that they have likely misinterpreted the evidence.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

 

 


You might also enjoy…

 

R.I.P Bull Market—Here’s How To Protect Your Wealth

I hope you’ve enjoyed the phenomenal bull market of the past eight years…

Because it’s about to come to a screeching halt.

The Federal Reserve’s nearly decade-long spending spree has finally come to an end.

With no other options left at their disposal, the Fed has no other choice than to raise interest rates to keep inflation in check.

And that leaves you with two options…

Do nothing and suffer the agony of watching the profits you’ve accumulated over the years evaporate right before your eyes…

Or reposition your portfolio and invest in companies which prosper as inflation rises and interest rates soar.

I think the choice is clear. And I’ll show you the best new positions you can take if you click here.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.

Stock Talk

  1. avatar
    Med Reply May 4, 2016 at 6:47 PM EDT

    For 2nd question – when it comes to witch’s the best stock to buy for the moment Oil vs Gaz and expect a good profit in months to come..?

  2. avatar
    Med Reply May 4, 2016 at 6:43 PM EDT

    Thx Robert for the article ..! x2 questions for you
    – When you think the oil will really rebound ..i.e by the end of this year or even sooner that we think ..?
    – What’s your position Oil versus Natural Gaz demand (LNG) in months to come..?
    Cheers