Demand for oil remains favourable, says Ashburton’s Richard Robinson
Richard Robinson, investment manager at Ashburton, sees support for the oil price in the form of ongoing favourable demand.
With so much focus on SHIBOR moves and revisions to Chinese GDP, it is useful to look at these factors in the context of Chinese oil demand.
Revised consensus GDP assumptions essentially moderates Chinese oil demand growth from 380k barrels a day to 365k barrels a day. In the global context this is a moderation in demand of 0.016% (Nigerian pipeline thefts would divert this amount in 24 minutes).
We believe that the current oil price level of $102 barrel offers upside. Over the last ten years, the oil price has received strong support at marginal cost. We are in an environment where marginal cost of oil is approximately $100 – a level that also coincides with the budget breakeven oil price required by most OPEC countries, including the Saudis.
The demand outlook for the second half, barring an economic meltdown, is also favourable. Firstly, we are entering driving season (the time of year when Americans drive to holiday locations). Although this happens every year, we anticipate an increase in demand of 300k barrels year on year.
Secondly, major refineries in Asia and Europe are either starting up new refineries or coming out of maintenance season and we are anticipating approximately two million barrels of increased demand due to a pick-up in refinery throughput.
Thirdly, the much talked about increase in OPEC supply (+220k barrels a day) will not find its way into the export market as the seasonal Saudi demand swing (April to September) will increase domestic demand by around 300k barrels a day. This is due to extra crude burning in order to power up the air conditioners.
These three factors, combined with the fact that we are also entering hurricane season in the Gulf of Mexico, leaves us favourably disposed to the energy sector.