Yes, Oil Demand Should Keep Growing

A few months back we had people calling for $150 and $200 oil, but now many people are saying $50 or $60 is not only possible, but likely. What a difference hedge fund liquidations and a recession can make. Is the oil bull market over, or just put on hold due to an impending global recession? My best guess is the latter.

Consider the charts below. They show crude oil consumption for this decade, with current 2009 estimates included. The first one shows oil consumption in the U.S. which isn’t very impressive and screams lower prices. After all, we represent 5% of the world’s population but consume 25% of the world’s oil.

Not so fast though. Here is a chart of oil consumption worldwide. It shows a much different picture.

Will the current recession result in a reversal of this graph? Probably not to any large degree. The line will flatten surely, and perhaps even dip slightly, but by the time that happens any global recession will be mostly over and demand growth will be set to resume alongside economic growth. Long term I still think the oil bull market remains intact until we truly start replacing large amounts of oil consumption with alternative fuels.

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2 Thoughts on “Yes, Oil Demand Should Keep Growing

  1. Anonymous on October 22, 2008 at 11:29 AM said:

    In a previous post you predicted that with the oil price decrease refineries will start making more money and recommended VLO as one possible investment choice.

    They are continuing to fall down ever since then.

    How do you see them today?

  2. Chad Brand on October 23, 2008 at 5:55 AM said:

    Indeed, everything energy/commodity related has been crushed, refiners included. VLO trades at 65% of tangible book value, so it is hard to argue the current stock prices in this group are rational. I thought it was cheap then, and it’s even cheaper now. VLO reports next week, so it should be an interesting conference call.

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