Goldman: Oil Demand Will Continue To Soar
Oil demand is growing, and production is falling. This is the message we have been receiving for a few weeks now with increasingly frequency, especially after OPEC’s leader Saudi Arabia admitted it would like oil prices even higher than US$70. Like a genie from a lamp, the market immediately obliged with traders rushing in to buy more oil, pushing Brent closer to US$75.
Everyone who’s anyone seems to be upbeat about demand. The IEA forecasts daily demand growth at 1.5 million bpd this year. Reuters shipping data suggests April imports into Asia will hit an all-time high. Investment banks are bullish. What could go wrong?
If you listen to Goldman’s Jeffrey Curry, nothing. In a recent interview with Bloomberg, Currie said, “You’d have to get a really high price before you start to see it damage demand,” adding that higher oil prices were actually good for the global economy because “higher oil prices lead to creation of global excess savings – petrodollars,” which are then invested again globally, stimulating further demand.
In case anyone suspects there is something wrong with this rosy picture, they are right. For starters, these “global excess savings” will only come after oil producers close their budget gaps. Saudi Arabia alone has budgeted a deficit of more than US$50 billion for this year. It will be a while before it gets to have any savings, let alone excessive ones, to invest globally and stimulate oil demand. This is true of other major producers, too, as they all were hit hard by the last oil price crisis.
Leaving budget deficits aside, there is also the problem with inflation. Since virtually every single economy in the world is dependent on oil, inflation is closely linked to prices. Higher oil prices mean higher fuel prices and higher fuel prices drive higher inflation.
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