Weakness in non-OECD oil demand
Goldman Sachs cuts forecasts and closes all oil trading recommendations.
The bank lowered its old demand growth forecast for next year to 100,000 barrels a day, from 300,000 barrels a day. It also cut estimates for supply expansion outside the Organization of Petroleum Exporting Countries by 50 percent to 200,000 barrels a day, because of slower production recovery in the Gulf of Mexico and Azerbaijan.Note especially the demand consequences:
Combine this with the latest IEA report that placed the entirety of demand growth over the next 20 years in the developing world, and the consequences of non-OECD demand destruction becomes clearer.Although the worst of the commodity demand weakness in OECD economies is likely already behind us, the outlook for non- OECD demand is more uncertain
The perversity in all of this is that it harms renewable start-ups that are trying to displace oil consumption, but on the other hand the Economist recently argued that a brief downturn would trim the green energy bubble and the industry would ultimately weather the disruption well. This, by the way, is a big reason why real options analysis need to be a standard practice when assessing alternative energy (and energy conservation) investments. One needs to consider price volatility, not just high price scenarios, to fully account for the value of alternative energy options.
