Offshore Capitalist

Factors that favour the crude oil bulls

Commodity Online — Several factors contributed to the recent rally in oil prices including tighter physical oil supply and demand fundamnetals, loose monetary policy and a weaker US dollar.The global economy is bouncingback after the sharpest recession in the post World War II period. According to a Bank of America-Merrill Lynch (BofAML) analysis GDP growth is recovering strongly to 4.3% and 4.5% in 2010 and 2011 from an abysmally low figure of -0.8% in 2008.

Economic recovery is sure to spur global oil demand growth at 2 million barrels per day (b/d) from 1.4 b/d previously which in effect means demand in 2010 is expected to overtake the demand in 2008, BofAML analysis said.

Activity has turned around surprisingly quickly in emerging markets but fiscal spending programs and very loose monetary policy have also floored the rate of contraction in developed economies.

Key leading indicators for the global manufacturing cycle—such as exports out of Korea and Taiwan, business confidence in Europe, the United States and China and industrial orders in Germany—have recently surprised to the upside. While the recovery might be choppy and jobless in the United States, business cycle effects, re-stocking and fiscal spending makeus significantly more bullish on the recovery relative to consensus, BofAML analysis said.

Almost every single country around the world has been showing signs of improvement. Final demand is recovering, the global inventory cycle is turning up and the implosion in global trade that pulled down the global economy is reversing

via Factors that favour the crude oil bulls | 14 November 2009 |

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