Oil prices are continuing to rise, with US light crude hitting US$53 a barrel yesterday.
At a briefing to economists and reporters in Singapore yesterday, David Robinson, deputy director of research for the International Monetary Fund (IMF), said that the recent surge in oil prices could shave 0.3 percentage point off the world economic growth rate of 4.3 percent it had estimated for next year in its latest World Economic Outlook report.
James Picerno at The Capital Spectator thinks that oil prices may not drop without a reduction in oil demand.
Demand Destruction—The Last, Best Hope?
A major downshift in demand may be the only silver bullet for slaying, or at least slowing, the bull market in crude. The commodity now changes hands for $52 a barrel, in case you haven't noticed.
What are the odds that demand is poised for an imminent sharp decline? Fairly low, writes Neil McMahon and his energy team at Sanford Bernstein & Co. in a research note dated yesterday. "A major drop in crude prices looks unlikely without a major drop in demand and currently we are seeing limited evidence of demand destruction."...
Likely or not, a material slowdown in demand growth, if not an outright fall in demand, looks increasingly necessary to offset the deficit in U.S. crude inventory levels. That's because demand is far easier to change in the short term, theoretically, than is supply. The smoking gun of evidence can be found in Saudi Arabia, where the oil reserves are second to none in quantity and accessibility. And yet, even the kingdom is having a tough time adding fresh capacity in the short term. No wonder the task is that much tougher virtually everywhere else.
A drop in demand, of course, is not likely to happen in the absence of a recession. So assuming that we don't get that any time soon, if James Picerno is right, be prepared to pay around US$50 a barrel for quite a while longer.