The so-called Great Recession hit crude markets hard because with industrial activity slowing down, the need for massive amounts of energy dipped. Now a recovery is emerging, but the oil markets may not recover in sync with the overall markets.
Global demand for crude in 2009 ended 0.3% over its 2008 level, but compared to 2007, it was down about 2%, according to Dina Cover, an economist at TD Bank.
“With consumption still quite weak, there is plenty of oil to go around,” the number-cruncher said. Total global production increased by 1.6% in the fourth quarter, and was 1.3 million barrels per day greater than demand. “In fact, after showing great improvement through most of 2009, the supply-demand balance shot up dramatically during the last two months of the year.”
Global inventories are at 95 days supply, compared to the five-year average of 86 days.
“What's more, OPEC [the Organization of the Petroleum Exporting Countries] spare capacity jumped from 1.5 million barrels per day to 4.4 million barrels per day in 2009, and is expected to continue to increase through 2011 to nearly 6 million barrels per day as new capacity comes online.”
Put it all together and despite a rebound in demand for oil, the excess supply, coupled with increasing capacity, will keep the lid on crude prices. TD predicts oil to stick around $80 per barrel in 2010, and climb to U$85 in 2011.