Analyst: High oil price is eroding oil demand growth

The present high price of oil is likely to erode oil demand growth in the near to medium term, said Banc of America Securities LLC analyst Tyler Dann.

Aug 20th, 2002

By OGJ editors

HOUSTON, Aug. 20 -- The present high price of oil is likely to erode oil demand growth in the near to medium term, said Banc of America Securities LLC analyst Tyler Dann.

"A strict extrapolation of oil demand elasticity to price would imply that annualized demand growth should be flat to negative when the West Texas Intermediate oil price is above $26.30/bbl," Dann said.

Based on this analysis in isolation—and with WTI prices hovering presently just below $30/bbl—there would actually be an implied demand shrinkage of 0.6%, Dann said. "We do not place 100% reliance on this analysis, given the relatively weak relationship and the fact that it can be easily influenced by exogenous factors (such as global GDP trends)," he said.

The analysis, however, "does provide an incremental negative sign for the supply-demand picture," he stated, adding, "The other negative signs include indications of a delayed economic recovery, potential for higher production from (the Organization of Petroleum Exporting Countries') 'leakage' or official production quota increases, and increases in non-OPEC production."

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