| ECONOMY: CIBC predicts strong crude prices to push TSX to 15,200 by end-2008 |
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(AlbertaIndex, June 11, Wednesday) --- CIBC World Markets have predicted that the TSX will hit a record high of 15,200 by year-end on the strength of sustained high prices for crude oil. In a new report, it said that the fundamentals of supply-demand, not speculation or weakness of the US dollar, caused the near doubling of oil prices over the last year. “We estimate that accumulation of ‘paper’ barrels of oil in the hands of speculators has been, at most, one fifth of the increase in Chinese demand for actual barrels of oil over the last five years,” said Jeff Rubin, chief strategist and chief economist at CIBC World Markets in his monthly Canadian Portfolio Strategy Outlook report. “And even if denominated in a trade-weighted basket of world currencies, the price of oil has still risen to over US$100 a barrel.” At nearly US$4 trillion per year, the world oil market’s sheer scale - about 20 times the value of global commodity index investment - is itself a barrier of some significance to market-moving speculation. He saidys that one way of gauging the role of speculation is to look at the effective diversion of physical supply that would be needed to match the historic rise in speculators’ holdings. Non-commercials (speculators) long positions for crude oil and oil products have risen by the equivalent of 848 million barrels in the last 5.25 years. Impressive as that number may sound, Mr Rubin said that it works out to only an increase in exposure of about 500,000 barrels daily - a fifth of the rise in Chinese demand or about six per cent of the total pressure on oil supply from some major identifiable factors over the same period. “If hoarding were raising prices, inventories should be rising but in fact they are not,” added Mr Rubin. “According to the IEA, oil inventories remain within their longer term range of 50-55 days of supply while exchange stocks for key metals like copper are as much as 40 per cent below normal. “The claim that the rise in commodity prices is largely just the inverse of US dollar weakness also seems dubious, since oil has risen strongly against other currencies. Indeed, we estimate that oil would still cost US$100 - five times its 2002 level - even if the US dollar had not declined against a trade-weighted basket of other currencies.” World oil demand is still growing despite the drop in oil consumption in North America, Japan and Europe due to high prices. This has been offset by the continuing oil demand growth in Brazil, Russia, India, China and many Middle Eastern countries. China’s policy to partly subsidise domestic oil prices will also continue to boost demand in that country. CIBC World Markets also expects that infrastructure damage from the recent earthquake in China will boost the need for diesel power and oil demand there, potentially for the next several years. “The latest data appears to add substance to our earlier fears that runaway domestic demand is cannibalizing production in the traditional oil-exporting countries, limiting their ability to meet the needs of an increasingly thirsty world,” said Mr Rubin. “According to the US Department of Energy, shipments of petroleum products by the world’s top 15 oil exporters fell 2.5 per cent in 2007 and the weakness appears to be carrying over into the present year.” Did you enjoy this article? Please share it!         |
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