Petroleum prices will remain in a sideways to down trend. At least in the OECD, industry inventory in days coverage terms is currently higher than average. Due to renewed economic weakness and still relatively lofty oil prices, petroleum demand for the balance of 2011 and calendar 2012 probably will be less than many believe. Thus days coverage in the petroleum world probably will remain adequate for some time.
Petroleum remains partially hostage to variables of and trends and levels in key equity, currency, and interest rate (and other commodity) battlefields. Equity declines seem to be intertwining with those in the petroleum complex. Consumer balance sheets and incomes in the United States and many other nations remain under pressure. Substantial fiscal deficits (US, several European nations, perhaps Japan) undermine stock marketplace strength. A weak US dollar has convinced many that equities as well as petroleum prices should inevitably keep climbing, or at least stay high. However, a very (especially) weak US dollar situation- which seems to be emerging these days- may coincide with both feeble stocks and falling petroleum prices.
Petroleum bulls underline that if the economic recovery retains strength, supplies could get fairly tight unless OPEC raises its production quite a bit. Admittedly, as the Libyan situation shows, there’s always a chance that some event will significantly interrupt supplies. Some petroleum players therefore prefer to keep a handful of extra inventory around “just-in-case”. Alternative investment by noncommercial players has not evaporated. Some observers have faith that if the American economy weakens substantially, the Fed will engage in a third wave of quantitative easing (money printing) which would rally petroleum prices in nominal terms.
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