Today, WTI oil trades comfortably above US$100. So why the panic? Sky-high global inflation and rising interest rates to combat it have meaningfully increased fears of an imminent recession and ensuing weakness in oil demand. Do recessions necessarily mean falling demand, and if so, what does it mean for the oil price and energy stocks?
Oddly then, while panic is rising these two signals suggest that oil fundamentals are in fact further strengthening, and therefore any fears of oil demand weakness must not relate to what is, but rather what may be. Historically, periods of global oil demand contraction are very rare, corresponding to only the most severe of economic contractions, namely the COVID demand shock of 2020 and the global financial crisis of 2008/09. In other times when certain countries or continents entered a recession, such as the United States in 1980 and 1990, while the rate of oil demand growth slowed it still remained positive.
What if we are wrong and demand does indeed fall more than expected? With inventories today at such low levels relative to normal, even a one million barrel per day delta would have to persist for nearly a year for OECD inventories to reach normal levels.Article content
financialpost Thank God. God bless Alberta
financialpost Lol yeah right Eric, oils is about to fall off a cliff, but when you’re one dimensional….
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