I’m sure you’ve watched oil prices drop recently—or at least you’ve noticed a discount at the pump.
From an investor’s standpoint, it’s been a rough few months. The drop in oil has not only hurt the energy sector, but several global economies that rely on oil for income. This, in turn, has hurt other sectors, leading to some dramatic drops in global markets.
Much of the concern over oil comes from China’s crashing economy. There are worries that the world’s largest energy importer will be spending less on imports, and that the lower demand will prolong our oil glut.
Bloomberg researchers say this isn’t so. In fact, China has purchased more than 500,000 surplus barrels of oil between January and July this year, indicating a move toward storage for future use, not lack of demand.
According to the International Energy Agency (IEA), China is storing its surplus at two separate sites with a capacity of 50 million barrels between them. Additionally, the country’s largest oil trading company, China National United Oil Co., will import a record amount of oil from Singapore this year.
Head of commodities research at Standard Chartered in London, Paul Horsnell cites the difference between the price of Brent crude and 12-month settlement futures, which has dropped from $11 in January to $6 this week.
This implies a smaller global oil surplus than earlier in the year, despite the ongoing glut.
“It’s not based on any kind of oil supply-demand fundamentals,” says Horsnell. “If we were running purely by the micro-data, people would be saying: ‘Hey, this isn’t too bad’.”
Even his kind of hopeful outlook won’t help investors right away; the market is still at its lowest in years. But this information can at least offer a glimpse toward recovery for oil prices, even if it takes a while to get there.
To continue reading…