Crude Oil Outlook – Blast from the Past – The InvestBank note on Crude Oil Outlook in 2010

Here is the note that I have referred to a number of times in the past on this site. Written by Nauman Khan at InvestBank in mid March and release for public consumption in early April, Nauman correctly pointed out that the fundamentals for Oil outlook were very weak. His basic thesis in the note moved around the following key points

  1. Crude oil demand
  2. Crude oil supply
  3. Market liquidity
  4. USD parity against Euro and other currencies and
  5. Futures spreads


Nauman then linked the above to growth outlook and contested the EIA numbers especially wrt to India and China.

“Just as with any other commodity, the demand and supply dynamics for crude oil play a vital role in crude oil pricing. As far as the significance of this commodity is concerned, crude oil has been considered as an engine to the overall industrial and economic growth. The commodity prices and demand both have shown a high correlation to the global economic growth. Therefore, it is clear that oil prices will primarily be hinged upon a rebound in global economy going forward. The global economic recovery will drive the revival in crude oil demand stemming from emerging markets, particularly China and India. However, the demand will be roped in by subsidy elimination reforms in the said countries, and therefore, a downside bias to international energy agencies’ crude oil projections. Furthermore, we believe the surplus capacity being added by the OPEC countries on account of production enhancement in Iraq, will completely offset the bullish elements of demand growth and stagnant crude oil supply from Non-OPEC circle. Thus, demand-supply scenario of crude oil market is indicative of relatively subdued oil prices going forward. ”

Nauman’s other key points were the impact of liquidity and regulatory requirements on institutional participation in crude oil as well as the anticipated strength of the USD as the Fed started raising rates and the economic outlook in the US overtook that of Europe. If you have the time, download the crude oil outlook note by Nauman and read it.

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