Global oil demand is increasing with the pick-up in growth and this will place upward pressure on oil prices. There has been a break-out to a 26 month high. The demand shock is based on better economics in both developed and emerging markets. 2010 demand increased 2.3 million b/d. We are now at pre-recession levels above 88.3 million b/d in the third quarter. US consumption is going up, wit the biggest monthly increase since 2004, as measured by the Department of Energy.
OPEC has to determine whether it should change quotas given this increase in demand. However, it is not clear that OPEC would like a higher price above $90 given the behavior demand to oil. Saudi Arabia needs prices above $74 and China needs oil prices below $90 to keep refiners profitable. The recession of 2008 cold be viewed as a reaction to the oil price shock in the first half of the year. Certainly, the gains in prices taxes consumers who have inelastic demand. OPEC would no like a repeat of 2008 based on a short-term shock in price.
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