Oil Undervalued, Despite Drop in Demand

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". . .oil a stand out buy."

Citing "a continuing weak economy," the U.S. government forecasters said yesterday oil demand in the current quarter 2009 will be at 18.64 million barrels a day, down over 1 million barrels a day, 5.3% below last year.

Add to that the latest projection of the Energy Information Administration 1.4%, or 260,000 barrels a day, reduction from the April forecast.

For the peak driving season, the estimate stands at an average 9.075 million barrels a day, below the month-earlier forecast, and 0.7%, or 65,000 barrels a day above the 2008 level.

For 2009, oil demand in the U.S. will be 18.85 million barrels a day, down 2.9%, or 570,000 barrels a day from a year earlier. The forecast is a downward revision of 140,000 barrels a day from the April forecast. A 200,000-barrels-a-day drop in distillate demand (heating oil and diesel) accounts for much of the decline.

In 2010, expected economic recovery will lift demand by 250,000 barrels a day to 19.1 million barrels a day, the EIA said.

U.S. third-quarter oil demand will average 18.79 million barrels a day, down 0.3%, or 50,000 barrels a day from a year earlier, and 60,000 barrels a below the April forecast, which projected a slim year-on-year rise.

Taking these numbers at their best, oil demand is down 3%, or let's be generous and say a 10% global retraction in oil demand, yet the price is almost 1/3 of where it was pre-crisis, making oil a stand out buy.

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