Submitted by Jeffrey Snider – Alhambra Investment Partners
Though they still refer to “supply” in almost every written piece about the recent oil price action, it is now more of a background note. Instead, the narrative is being forced by reality to adjust. Finally recognizing the role of demand in oil prices, the excuse morphs into “it’s only temporary.”
Global oil markets are experiencing “temporary” instability caused mainly by a slowdown in the world economy, Oil Minister Ali Al-Naimi said, according to comments published yesterday by the Saudi Press Agency. He reiterated the country’s intention to maintain output amid plunging prices.
That isn’t what “they” said only a few weeks ago, as again it was supply, supply, supply. The crashing in December of the eurodollar system has meant that there is no way to ignore or distort the role of falling (disintegrating, really) “demand” for crude regardless of who is supplying what.
Steady global economic expansion will resume, spurring oil demand, Al-Naimi said, leading him to be “optimistic about the future.”
Nothing to see here, move along? We should all be forgiven if we express doubts about the Saudi’s abilities toward global economic forecasting. Like orthodox economists, none of the bunch saw this now-admitted “demand” problem coming, as the expected “unexpected” leaves them in scrambling disarray yet again. The basis for this end to the “unexpected” temporary drop in demand is not drawn from any market prices but rather Janet Yellen’s now-considerable philological fluidity. Continue reading