Repeat after me: “The best cure for low commodity prices is low commodity prices.” This mantra isn’t very comforting if that’s mostly because producers are forced to slash their output of commodities to match the world’s depressed demand for commodities, which is depressed by the economic and financial repercussions of the producers’ retrenchment.
Cheer up! There is already some evidence that low oil prices are boosting global oil demand, which also strongly suggests that low oil prices are boosting global economic growth. The flood of global liquidity provided by central banks is now being supplemented with a flood of cheap oil. I am a big fan of the monthly demand and supply data compiled by Oil Market Intelligence (OMI). I track the 12-month averages to smooth out seasonality. Consider the latest data through August:
(1) World oil demand rose 2.0% y/y to a new record high last month. That’s the best growth rate since August 2011.
(2) Developed and developing oil demand are both growing faster with gains of 0.9% and 3.1%, respectively.
(3) World oil supply, however, continues to outpace demand. I use OMI data to calculate a ratio of demand to supply. It fell last month to the lowest reading since January 1999.
There are plenty of other global economic indicators suggesting that the global economy is growing, and benefiting, on balance, from the drop in commodity prices.
Today's Morning Briefing: Commodity Bubble Pops. (1) Not so superlative. (2) When bubbles burst, bad things happen. (3) Is it different this time? (4) A bubble pops with more winners than losers, maybe. (5) A brief (and proud) review of our commodity bubble forecast. (6) Still falling. (7) Caterpillar Inc (NYSE:CAT) and Glencore PLC (LONDON:GLEN) marked the top in commodities during 2010 and 2011. (8) Marking the bottom now? (9) EME stock prices still tied more to commodity prices than to their emerging middle classes. (10) The best cure for low commodity prices. (11) World oil demand growth is picking up! (12) No recession in US and Europe confidence measures. (13) Focus on market-weight rated S&P 500 Energy.
