Are stocks and oil bottoming?

Was last Tuesday’s 350-point rally the beginning of the end of the bear market or just a false “bear trap?”  And a related question: “Did oil bottom at $33 and will it get re-tested?”  Let’s see what we know.

Some things we know

Sometimes the objective observable facts can yield fairly clear conclusions.  Usually that’s not the case.  Usually you can use the available facts to make a decent argument in either direction.  But sometimes the facts seem fairly clear.

For example, there should have been clarity about being …

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October oil demand down 4.07 pct from year ago: EIA Mon Dec 29, 2008 11:25am EST   WASHINGTON (Reuters) - U.S. oil demand in October was 598,000 barrels per day more than previously estimated and down 833,000 bpd from a year earlier, the Energy Information Administration said on Monday. U.S. oil demand in October was revised up by 3.14 percent from the EIA’s early estimate of 19.045 million bpd to the agency’s final demand number of 19.643 million bpd, and was 4.07 percent less than demand of 20.476 million …

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  IEA Warns of Energy Supply Crunch 11/12/08 - 07:42 AM EST , The Associated Press By Jane Wardell   LONDON (AP) — The International Energy Agency on Wednesday predicted world energy demand will rise 1.6% a year on average between 2006 and 2030 and called for massive investment in energy infrastructure to prevent a supply squeeze. The IEA’s base scenario for energy demand has …

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A front page New York Times report today posted below suggests that minimum oil price thresholds are within view of the current $70+ WTI price.  It said in part, “The drop in prices has already created problems for oil producers. Iran and Venezuela both need oil prices at $95 a barrel to balance their national budgets, Russia needs $70 and Saudi Arabia needs $55 a barrel, according to Deutsche Bank estimates. Algeria’s oil minister, Chakib Khelil, said on Thursday that the “ideal” price for crude oil was $70 …

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  Revised July oil demand lowest in 11 years: EIA Fri Oct 3, 2008 1:19pm EDT By Tom Doggett WASHINGTON (Reuters) - U.S. oil demand in July fell to the lowest level for the month in 11 years, with consumption 736,000 barrels per day less than previously estimated and down 1.335 million bpd from a year earlier, according to the U.S. Energy Information Administration. Crude oil and gasoline prices hit record highs in July, and U.S. motorists reduced driving for the ninth month in a …

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I think oil will trade in a range of $80 - $100 a barrel in the foreseeable future, probably another year.  Why?  First supply and demand:  Vectors for a lower price include roughly 3 mb/d  of reduced demand from the U.S. (about 1 mb/d) and more Saudi supply (about 2 mb/d) vs. a year ago.  The rest of the world is about flat with higher demand from China, some other Asian economies and oil exporting economies more than offsetting reduced OECD demand.  On the non-Saudi supply side, more supply from …

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Recent estimates by the The International Energy Agency (IEA) and OPEC both point to slightly reduced global oil demand due to the impact of higher prices and lower economic growth in the OECD countries, primarily the U.S. The IEA indicated in a report shown below that oil demand will grow 690 kb/d in 2008 and 890 kb/d in 2009.  The Oil and Gas Journal (8/25/08, p. 68) reports that OPEC has reduced its estimated global growth rate by .1% for 2008 and warned that 2009 oil consumption could fall.  …

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Charlie Maxwell, the energy analysts who’s been calling out values in oil and gas companies for decades, recently issued his long range oil price and supply/demand forecast.   It calls for a range-bound oil price of $75 - $115 for a couple of years or so followed by new high prices in 2011 - 2012, $200 oil in 2013 and $300 in 2015.  His fundamental model is very close the the analysis of megaprojects that I recently posted.  He sees tightness creeping into the supply/demand dynamics in 2010 …

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Part of Toyota’s annual “Sustainability Report” for 2008 contains an interesting look at how the company foresees the growth of vehicles and energy requirements globally.   It says, “Approximately 800 to 900 million passenger vehicles exist worldwide, increasing by around 100 million vehicles every five years for the past two decades. Toyota projects that “this increase is expected to continue in the future, particularly in developing countries, meaning that ownership will likely exceed 1 billion vehicles in 2010 and reach 1.5 billion vehicles in 2020.” Although an explicit strategy to …

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Russia’s adventure in Georgia followed by Bush’s advancing the timetable for putting “defensive” weapons in Poland, followed by…  Well, this could keep on going for a while.   Nobody has any appetite for a hot war but it looks like a cold one is here.  Bush is like a jilted lover - he thought he saw Putin’s soul but the calm glint in Vlady’s eyes was only naked ambition slaked by his knowledge that Russia is gaining the advantage every day according to their bank deposit records.  I think Putin …

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The discussion posted below suggests that we may see price swings on the downside that are as wild as what we’ve seen on the upside.  I am reminded that in late 2007 I predicted (boldly, I thought) that 2008 could see the price of oil go all the way to $115.  My prediction turned out to be timid and I think one reason for that is because of the time delays and market hysteria (aspects of Queueing Theory) discussed below.  Time delays mean that the function of prices work, but …

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I noted in my recent comment on asset allocation toward cash, it would make sense to the Chinese governement to discourage gas consumption.  Well, it seems they are doing just that.  The following was reported today in The Gartman Report and elsewhere:   “We note this in light of a decision announced today inBeijing wherein China will raise the consumption tax onhigh-emission passenger vehicles and will cut theconsumption tax on low-emission passenger vehicles aspart of efforts to conserve energy. This is simple; this iselegant and this is …

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The IEA raised its estimate of 2009 global oil demand by a slight 60 kb/d while cutting its 2008 estimate by 80 kb/d.  It also said OPEC spare capacity will rise later this year and next from the current 1.5 mb/d.  OPEC output in July at 32.8 mb/d was 1 mb/d higher than in April and 1.7 mb/d higher than in July, 2007.   Even non-OPEC output, generally thought to have peaked, rose and average 455 kb/d in 2008 and is expected to rise another 655 kb/d in 2009.  Apparently, higher …

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The following Globe and Mail report highlights global oil demand reduction including the well known U.S. first half reduction of roughly 4%.  Note that this drop in oil use came while the price was rising but for most of the period had not reached anywhere close to the  $147 level it eventually attained.   Note also that the 800kb/d U.S. drop is an average for the 6-month period - clearly the drop was increasing and so the running rate now could be a good deal more.  I heard a new …

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A report from Reuters (below) headlining lower Chinese oil imports in July contains a much more interesting comment:  “We believe first-half crude stocks have risen much faster than a year ago, together with inventories of gasoline and diesel,” said Yan Kefeng, a senior Beijing-based analyst with Cambridge Energy Research Associates who closely tracks China’s rarely reported oil inventory data. “We are likely to see fuel imports slowing in the coming months.” China July crude imports in biggest fall since Jan 05 Reuters , Monday August …

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