A very good short piece at the Financial Times by Ed Morse, chief energy economist at Lehman. Readers may know that Lehman has been the staunch oil bear in contrast to Goldman’s uber oil bull posture.
Note that Morse’s argument is similar, although more short-term focused, to a post we discussed, “Peak Demand.”
From the Financial Times:
World oil consumption is now growing at a significantly lower pace than had been imagined a year ago. Last October, the International Energy Agency was forecasting global demand growth for 2008 of 2.1m barrels a day, with 750kb/d from the OECD and 1.33mb/d from emerging markets. In their latest monthly report, the IEA has slashed this by more than 60 per cent to 800kb/d, with OECD demand actually forecast to decline by over 600kb/d and emerging markets demand to grow by 1.4mb/d.
In our judgment, the IEA’s forecasts for emerging markets will turn out to have been far too optimistic…. two other articles of faith are being challenged. First, the consensus thinking that emerging market oil demand has decoupled from industrial countries will be severely tested over the next half year. Second, the growing consensus that lower prices and higher economic growth will result in a rebound in global demand growth is wishful thinking….
There is growing evidence that the economic malaise affecting many of the OECD economies is spreading into emerging markets…
For China….challenging times are ahead for exporters and the metal and energy-intensive producers of steel, aluminium, cement, and other primary products.
Contrary to popular myth, these energy- intensive industries rather than the transport fleet are consuming the middle distillates that drive two-thirds of China’s petroleum demand growth. And now due to higher energy costs, an appreciating yuan, weak export markets, and a protectionist backlash, exports are falling,..demand growth could drop from its three-year average of 490kb/d to 350kb/d (up 4.4 per cent) in 2009…
Efforts to de- control prices in many Asian countries, have raised end-user prices significantly, some by more than 50 per cent. The few historical lessons about the effect of price hikes of such magnitude on demand growth point to structural tipping points….
The old adage that “nothing cures high prices like high prices,” is as true today as in the 1970s….We expect prices to stabilize at $90-100 per barrel but to still stimulate structural demand adjustments – we don’t foresee world demand growth exceeding 1mb/d per year for some time.