Commodities | Feb 08 2008
By Chris Shaw
It may not be quite the certainty in life like death and taxes are but it can be reasonably assumed there is a seasonal element to oil demand centred around the changes of seasons in the northern hemisphere.
As Commonwealth Bank commodity strategist Tobin Gorey notes the oil market will soon be moving from its peak demand period of northern winter to what is traditionally a period of weaker demand during spring.
The current period of strong demand not surprisingly coincides with traditional low points in terms of inventory for both crude and petroleum products, giving the impression the market is relatively tight.
But as Gorey points out OPEC’s decision to hold production levels steady shows the organisation is looking through the usual seasonal factors and taking a longer-term view of the market in attempting to maintain a balance between inventories and demand.
OPEC’s press release following its recent decision noted commercial oil stocks are in line with their usual seasonal trends and should remain so during what is traditionally a period of lower demand running from March to May.
Assuming the market plays out this way and demand falls as expected Gorey suggests there is likely to be some easing of price pressures, though as he notes seasonal factors are not the only determinant of prices and other elements could also come into play.
One example has been the recent concerns over the health of the US economy, which has pushed the oil price lower on the expectation of reduced demand from the world’s largest oil consumer.
The bank’s view is oil prices will remain at historically high levels over the course of the year thanks to ongoing tightness in the market, though it expects prices should end the year a little lower than is currently the case.