Why You Might Want to Load up on Oil Stocks Now

Posted by Ian Cooper - Friday, December 10th, 2010

From Bloomberg.com:

"The International Energy Agency raised its 2011 global crude oil demand forecast for a third month on consumption gains in North America and China.

Crude use worldwide will average 88.8 million barrels a day next year, about 260,000 barrels more than its previous forecast, the Paris-based adviser said today in its monthly Oil Market Report. Increasing demand could put pressure on OPEC to boost supply early next year, the IEA said.

Oil traded at the highest level in more than two years this week amid evidence of global economic recovery. U.S. jobless claims fell a more-than-forecast 17,000 to 421,000 last week, the Labor Department said yesterday. China’s manufacturing grew at a faster pace for a fourth straight month in November. The Purchasing Managers’ Index rose to 55.2 from 54.7 in October, China’s logistics federation said on its website on Dec. 1.

“Against a backdrop of much stronger-than-expected global oil demand growth and oil prices above two-year highs, OPEC may come under pressure to increase supplies to the market in the new year,” IEA said in the report.

Demand for crude has been rising since the third quarter of 2009 led by developing economies, according to the IEA. Asian demand growth continues to “dwarf” all other regions, the IEA said, with China accounting for about half of the growth outside the Organization for Economic Cooperation and Development.

“Global demand grew by a giddy 3.3 million barrels a day year-on-year in the third quarter,” according to the report. Demand growth in North America has been “remarkably strong” in the past two quarters, the IEA said.

Chinese Strength

Chinese demand rose by 12.6 percent in October compared with the year-earlier period. “The strength of China’s oil demand is consistent with other indicators suggesting that the economy is in danger of overheating,” the agency said. OECD demand could fall by 300,000 barrels a day between now and 2015, according to the report.

The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global supply, will meet tomorrow in Quito, Ecuador, to review output quotas.

OPEC producers, which include Saudi Arabia and Iran, will need to produce 29.5 million barrels a day next year, the IEA said. That’s 260,000 barrels a day more than current levels and 100,000 barrels above the IEA’s last forecast, it said.

OPEC Capacity

The group’s production capacity will rise to 36.94 million barrels a day by 2015, 150,000 barrels more than previously forecast, as Nigeria and Iraq boost output, the IEA said. Iraq has the world’s fifth-largest oil reserves, excluding deposits in its semi-autonomous northern Kurdish territory, according to data from BP Plc.

OPEC’s compliance with record supply cuts was little changed last month at 54 percent of the agreed 4.2 million barrels a day, the IEA said.

Next year’s estimate for non-OPEC supply was unchanged at 53.4 million barrels a day. Russia, currently the world’s largest producer, isn’t a member of OPEC.

Looking further ahead, the IEA raised its forecast for global oil demand for 2015 to 93.4 million barrels a day. That compares with the 91.93 million barrel-a-day estimate released in June. Emerging markets will account for more than half of global crude demand as early as 2013, it said.

Oil rose 6.5 percent last week, the biggest weekly gain in a month, after reports showed manufacturing grew in Europe and China, prompting Goldman Sachs Group Inc. and Deutsche Bank AG to increase their oil price forecasts for 2011 and 2012.

Hedge Funds

Hedge funds increased bullish bets on oil by the most in eight weeks in the seven days ended Nov. 30, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report.

The “plausible foundation for price strength lies with now apparent third-quarter fundamentals,” the IEA said today. “Upward demand revisions have outstripped those for supply.”

Industry-held crude stockpiles in the world’s developed economies increased by 700,000 barrels a day to 2.745 billion barrels.

Crude oil for January delivery advanced 22 cents, or 0.3 percent, to $88.59 a barrel on the New York Mercantile Exchange as of 10:07 a.m. London time."


Silver Pandas