Friday, July 2, 2010

BLACK GOLD 100$

I was planning to go for some shopping for some occasion at my home. The expense will be around 5000 bucks. I had made planning for the expenses from the past one month since as middle class family person one works out his expenses in the same format. The shopping was scheduled for this weekend and before the weekend the price hike of petrol and diesel followed with cooking gas was declared. Nothing much difference happened in rising these cost in my family, apart from foregoing budget of shopping by simply 1/3.

This is not the drama story of one family but all those except the rich compensated fat paid package holders. Global crude prices are around 70$ mark which quite low and the opposite reflection of the high price image is on India. We have read and heard a lot about this hike of the price of oil and etc. What we need to know is that why the price of crude in international market is hovering around 70$ mark and when the high price blessings are will be blessed and crude price will cross 100$ mark.

After the debacle of Europe and the latest measures related to pay cuts and reduction of expenditure, followed with a slow demand for the next few years have reduced the demand of oil in the European countries.

In crude and every commodity we know that demand increases the price and allows speculators to print money. Likewise the demand for crude is not so much as it was 6 months back in Europe. In US also the demand is subject to certain occasion and related to employment. If more jobs are created then demand pickups otherwise their also a drop in demand is transparent.

If we look for the demand from Asian economies we find China is now on the threshold of losing its steam of 10%+ GDP. As a result demand will not be picking up from china in the next 6 months time frame. Other Asian contribution towards oil apart from India is very less. In other way round India and china are the leaders in demand behind crude prices. But still the demand of India is not much capable to increase the global crude prices.
Below the chrat shows the sectorila utilization of crude:
In the United States, in contrast to other regions of the world, about 2/3 of all oil use is for transportation, as shown in the graph. (In most of the rest of the world, oil is more commonly used for space heating and power generation than for transportation.) Gasoline, in turn, accounts for about 2/3 of the total oil used for transportation in the United States. Other petroleum products commonly used for transportation include diesel fuel (used for trucks, buses, railroads, some vessels, and a few passenger autos), jet fuel, and residual fuel oil (used for tankers and other large vessels).
In the below chart we get to find the demand of Global CrudeConsumption :  
Global demand for oil is highest in the Northern Hemisphere's cold months. There is a swing of 3-4 million barrels per day (some 5 percent) between the 4th quarter of the year, when demand is highest, to the 3rd quarter, when it is lowest. (The precise amount varies from year-to-year, depending on weather, economic activity and other factors.)

While the 4th quarter is not the coldest in any region, estimated demand calculations are swollen by the traditional stock building that occurs during the period.

In the below chart one will get to understand the consumption of crude which reflects the demand created which pushed the prices of crude to 147$/barrel just before the 2nd recession attacked.

The biggest reason above all for the falling demand of crude is the absence of any major war game in the world at present. Since war situations spook the price of the crude.
So as of now and for the next one year cycle global crude prices will not breach the level of 100 mark and will remain below 90$ mark. Provided no war breaks out and the pace of consumption led economies remain to grow in the same speed as on current move.

Now I think the government is focused towards the oil marketing companies and the not the future demand of crude. After the price increase in Indian market crude demand from India will also drop. So finally crude prices will be around the mark of 70$-80$ and no threat of any increase of global crude prices.

Traders of commodity should reduce the exposure of crude as of now particularly the ones who are looking always for short term profits. Investors with a relaxed long term outlook invest in crude and remain invested and should have no fear of any further fall of crude prices. Unless the 50% of the world comes to an end crude prices will not drop below 60$ mark.60% mark might make my readers stretched but that the mark have been kept keeping further imbalances in economic recovery mechanism.So no 100$ crude price for the next 1 year.

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