Strategic Briefing | 5.11.12 | The Outlook For Oil Prices

Oil: A Temporary Selloff?
BCA Research | May 10
Oil prices may stay under downward pressure in the near term and are particularly vulnerable to euro volatility. Nonetheless, our cyclical bias is still positive…. Moreover, many of the headwinds for oil prices should prove temporary even if a washout in the euro does develop. Generous Fed liquidity reduces the odds of sustained U.S. equity weakness at a time when the U.S. economy is on a stable, albeit slow growth path. In this environment, lower oil and product prices have a self-stabilizing aspect by supporting consumer and business confidence, suggesting that without a major exogenous shock, the downside in oil prices from current levels is lmiited. Bottom line: Our Commodity & Energy Strategy service maintains that oil prices should be higher by year-end.

Iran Oil Exports Fall as Sanctions Tighten
The Wall Street Journal | May 11
Iranian crude oil exports fell sharply again in April and could be down by as much as one million barrels a day this quarter as many countries reduce imports ahead of sanctions that come into effect on July 1, the International Energy Agency said Friday.
OPEC Says ‘Plentiful’ Global Oil Supplies Outpace Demand
Bloomberg | May 10
The Organization of Petroleum Exporting Countries said that global oil supplies are outpacing demand levels, keeping its forecast for world consumption this year unchanged. OPEC, scheduled to meet next month, is producing 8.3 percent more crude than it considers necessary this quarter, data released today by the Vienna-based group show. This has helped inventories in developed nations to reach “comfortable levels,” equivalent to about 59 days worth of consumption, according to an e-mailed report.
Oil futures fall in electronic trading
Marketwatch | May 11
“With Chinese gross domestic product set to improve over the coming months, as the government continues to ease lending requirements, we would expect oil demand growth to pick up, although the apparent consumption figures may remain depressed in the short term due to lower runs in the second quarter,” said commodity strategists at Barclays Capital.
CBO study examines policy options to reduce oil price volatility
Oil & Gas Journal | May 10
Policies that reduce the US transportation system’s heavy reliance on petroleum products would more effectively shield consumers from volatile prices and supply interruptions in the long term than simply increasing US production, a new Congressional Budget Office study concluded. Higher vehicle fuel efficiency requirements and increased motor fuel taxes might be easier to implement than developing alternative fuels and their necessary distribution systems, it suggested…. Increasing US production would put downward pressure on global oil prices once projects were operating, but several overseas producers, particularly members of the Organization of Petroleum Exporting Countries, likely would respond by trying to reduce their exports, the study said. More US production also would take pressure off consumers to move away from petroleum products for motor fuels, it added. A study by the Energy Security Leadership Council at Securing America’s Future Energy, which was released on May 8, reached a similar conclusion.
Domestic Oil Production Is Irrelevant To Oil Prices
Matthew Yglesias (Slate) | May 10
Gasoline is made of oil, so it sounds to a lot of people like if the United States produced more oil domestically that gasoline would get a lot chaper. But a new CBO report on gasoline prices contains this nice chart which shows that it’s not so. Canada is a net oil exporter, Japan produces no oil, and the United States is a middle case. But it’s Canada, not the US, that’s in the middle case for retail gasoline prices. Why? The issue is that oil is a globally traded commodity, so oil isn’t really any more expensive in importing countries than in exporting countries.