You can shift the letters any way you want. Put the “I” before the “E” or put the “E” before the ”I” and it still spells nothing but demand driven trouble. No matter what letters you want to use, EIA (Energy Information Agency) or IEA (The International Energy Agency), we are seeing and expecting demand drops for oil of historic proportions.

Yesterday the Energy Information Agency arm of the Department of Energy (DOE)(I had to get more letters in there) weighed in raising the very real possibility that world demand growth would only increase next year by a mere 40,000 barrels a day. Now consider this: the EIA, due do plummeting demand, reduced their global demand numbers for the fourth quarter of 2008 by a whopping 690,000 barrels a day just from their October report. That would put the fourth quarter demand level at the lowest level since the dark days after September 11, 2001.. So in other words, their fourth quarter downward demand adjustment from just one month ago is 17 times more that what they expect global demand growth will be all of next year. Which also means that any more downward revisions on demand going forward means that global oil demand could actually go deficit from this year.

As it is the EIA is already laying on us some pretty historic demand drop numbers for the world’s largest energy consumer. The EIA says that US oil demand next year will be at the lowest level since 1998 when crude was zeroing on historic low prices. This year demand will end up at the lowest level since 1999. Crude prices will be 37% lower next year than they are this year and reduced its forecast for oil prices next year by 43 percent to $63.50 a barrel. That drop in 2008 demand was the largest drop since the energy shock days of 1980.

And it not just oil. The EIA dramatically lowered their gasoline price forecast by $1.19 cents a gallon meaning that the average price for gasoline in 2009 will be less than the average price in 2008 and that hasn’t happened in almost a decade. Diesel demand will be down and prices are expected to be down 28%. It's wild and it is crazy and this is reality when you have a global economic slowdown.

And even if we switch EIA with IEA the story is pretty much the same. The International Energy Agency today released its version of the global demand outlook and slashed its global oil demand forecast the most in 12 years. The IEA lowered its 2009 estimate by 670,000 barrels a day, or 0.8 percent, to 86.5 million barrels a day following weaker economic forecasts from the International Monetary Fund. Of course the market impact might be muted as this report was leaked earlier and priced in yet it shows you that demand is struggling in this economic environment. It is about time that the reporting agencies acknowledge what has been obvious to the market for some time and that is  demand for oil is dropping at historic rates. The IEA also lowered its outlook for the fourth quarter of 2008 by 1 million barrels leaving demand growth this year at the lowest since 1985 the year the Bears won the Super Bowl! Go Bears and not just oil bears Chicago Bears! Beat the Packers!  

And as all of this goes on the price at the pump continues to fall. The MasterCard Spending Pulse reports US gas demand is down 5.3% versus a year ago. Gas sales are down 4.2% versus a year ago. How low must it go to get all these extra people off my train?

Today oil may focus on the weekly EIA Report as opposed to the stock market. Mark Shenk at Bloomberg news says that U.S. crude-oil inventories are expected to rise for a seventh week. The builds are expected because of an increase in imports. Bloomberg expectations are for oil to increase by 1 million barrels (I am looking for 2). Last week crude oil imports declined by 3.5 percent to 9.97 million barrels a day. Imports dropped in three of the past four petroleum supply reports. The oil market is in contango where oil for future delivery is more expensive than near-month prices, which encourages refiners to increase stockpiles. Gasoline stockpiles probably increased 100,000 barrels (I am looking for a build of 2). Supplies of distillate fuel, a category that includes heating oil and diesel, are expected to increase by 900,000 barrels from 127.8 million barrels the week before.

Oil will see a short covering rally ahead of the numbers. If the numbers are not in line, we are back to watching the dollar and stocks. You need to be watching the Fox Business Network where you can see me every day! If you have any questions you can call me at 800-935-6487 or email me at pflynn@alaron.com to open your account!