As people who are inclined to obsess about demand-side issues, we marvel at how often market participants and analysts forget that price matters in the consumption equation. This was plenty ignored -- with major consequences -- in the global commodity price rally that took the world by storm in 2007 and 2008.
With that in mind, the latest crude oil demand estimates from the International Energy Association (IEA) caught our eye:
Global oil demand is revised down by 190 kb/d on average for 2009 and 2010, equating to 84.8 mb/d (-1.2 mb/d year-on-year) and 86.4 mb/d (+1.6 mb/d) respectively. Revisions stem largely from changes to non-OECD historical baseline data, as slightly higher GDP prognoses from the IMF are counterbalanced by a higher price assumption.
For several months, we have casually (if inexpertly) asserted that $85 crude oil was perhaps in the "too hot" area. It seems as though IEA analysts see something similar -- a slowdown in demand at the upper-end of the recent price range.
Naturally enough, the market already suspected as much: the crude oil market is down by more than 10% since reaching the $85 mark last month. And, inter-month spreads have widened, suggesting the market is over-supplied on the front-end of the price curve (and willing to pay premiums for storage).
Price does matter.
