One thing is for sure, oil will inevitably make another run. Granted, it won’t happen in the next hour, week or even month; but make no mistake, it will happen. The question isn’t a matter of ‘if’, but rather ‘when’.
And judging from the a string of news lately, thing are already starting to turn around.
Take the signs coming out of China, for example. China bought record amounts of oil and iron ore last month to meet increased demand by the country’s $586 billion stimulus. According to Bloomberg, Chinese oil imports rose 18% and iron ore purchases grew 5% in July, spending approximately $13.8 billion on the two commodities.
China’s recovery is one of the factors for the latest EIA demand revision. In their July outlook, the EIA rose its 2009 demand projection to 83.85 million barrels per day (up from a previous forecast of 83.85 million barrels per day).
That’s good news for oil prices, no matter how you slice it.
The International Energy Agency seems a bit more hesitant about higher oil prices. Their chief economist, Fatih Birol, recently said, "If the prices go much higher than today I think that would be a problem for the economic recovery; $70 and above, especially for oil importing countries."
However, the IEA doesn’t have much of an optimistic outlook. In a stark warning recently, Fatih Birol cautioned that global oil production will peak in a decade (some have argued that a global peak already occurred, but I’ll save that for another day). According to the IEA, "Most of the world’s biggest oil fields have already peaked, and the rate of decline in oil production is now running at nearly twice the pace as calculated two years ago."
Even though oil hasn’t been able to break through $75 per barrel, I don’t think we’ll see it drop below $60. Anything lower will put too much of a strain on new investments, making a future supply crunch much tighter, especially as those super-giant fields fall further into decline.
As for us? My veteran readers know where I stand on when to invest in oil. In fact, I also know they’re also the ones that are closing out easy double-digit gains during the day-to-day fluctuations of crude oil.
Until next time,