Dave Rosenberg recently put the odds of America going into recession in 2012 at 99%, but I doubt he had oil in mind when he said that. On the current path, oil is set to hit $150/barrel next summer. Take an economy in recession, add in oil prices well in excess of $100/barrel, and what do you get?
Let's briefly review the fundamentals. Here's the Energy Information Administration's current outlook (STEO, June 7 edition).
EIA projects that total world oil consumption will grow by 1.7 million barrels per day (bbl/d) in 2011, which is about 0.3 million bbl/d higher than last month's Outlook, primarily because of higher forecasts of consumption for electricity generation in China, Japan, and the Middle East.
Projected world consumption increases by 1.6 million bbl/d in 2012, unchanged from last month's Outlook. Projected supply from non-OPEC countries increases by an average of about 0.6 million bbl/d in 2011 and 0.5 million bbl/d in 2012.
EIA expects that the market will rely on both a drawdown of inventories and increases in production from both OPEC and non-OPEC countries to meet projected demand growth.
These daunting numbers—1.7 million barrels-per-day in 2011, 1.6 million barrels-per-day in 2012—portend a demand shock just like the one the world experienced in 2006-2007. The key phrase is a drawdown of inventories. This is precisely what happened prior to the oil shock of 2008. If you are forecasting that new oil demand will be met by depleting global stocks, you are already acknowledging that supply can not meet that demand. The EIA can't just come out and say that, of course.
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