The simple economics of supply and demand suggests oil will not be back @ $100 soon

Now that the shock of oil under $75 per barrel and gasoline under $3 per gallon has begun to wear off, the debate has shifted to when oil prices will rebound. A look at the economics of supply and demand suggests that the rebound probably won't take prices back over $100 that quickly. Unlike earlier oil price collapses, this time both demand and supply moved and both pushed the prices down.

 The collapse of oil prices, when the global financial crisis morphed into the Great Recession, was driven by plunging economic activity and plummeting oil demand.



























The diagram shows why getting back to the prices seen last summer would require reversing both these moves. The initial picture in the summer was demand marked D1 and supply marked S1 intercepting at A.
Then the supply curve shifted outward to the right, so that more oil would be supplied across the range of prices. Now demand D1 and the new supply curve S2 meet at B, price is lower and quantity is larger. This was followed by a fall in demand which shifted from D1 to D2.
The new intersection is C and prices are further down. Oil consumption is lower at C than B because demand is less. Were supply to completely reverse, prices would move to E, but the price rebound would not be complete. Likewise, were demand to expand and return to D1, prices would not return to A. Only the combination of reversing both these moves could put prices back to the levels seen in June and July 2014.


Source: http://articles.economictimes.indiatimes.com/2014-12-04/news/56723401_1_oil-prices-oil-demand-supply-and-demand

Global Demand Growth for Oil May Fall by a Third in 2016

After hitting a five-year high in 2015, the global growth in demand for oil is expected to fall by about a third next year, adding further strain to an already oversupplied crude market.

A 40% decline in the price of oil since last year has boosted demand, encouraging motorists, consumers and companies to top up. But the economic slowdown in China and elsewhere in Asia could sap that demand, according to analysts and big energy watchdogs.

Just how far that growth in demand will fall is unclear.

“We’re seeing pretty solid demand growth this year, but the big question is what will happen next year,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, which oversees $126 billion.

Sergey Frank, chief executive of Russia’s largest shipping company, Sovcomflot, said its net profit has more than tripled this year as cheaper crude keeps fuel costs low and demand high for the oil products that he ships around the world. 

 

Mr. Frank is preparing for the worst as he plans his shipping routes for next year.

 “Today there is favorable wind, but tomorrow there could be headwind on the market,” he said.

The International Energy Agency, an energy watchdog, forecasts global oil demand growth falling from 1.8 million barrels a day this year to 1.2 million next year.

The Organization of the Petroleum Exporting Countries, the 12-nation oil cartel, expects demand growth to fall to 1.25 million barrels a day, and some analysts see demand dropping even lower.

Falling global demand growth comes amid a continued glut of crude that has driven prices to less than $50 a barrel, from $100 a barrel just over a year ago. Booming U.S. output has slowed this year, but other major producers, from Saudi Arabia to Russia, have continued to pump crude at a fast pace in a bid to defend, and win, market share.

source: http://www.wsj.com/articles/global-demand-growth-for-oil-may-fall-by-a-third-in-2016-1445430195