A Counter Intuitive Look at Crude and Drilling

Rigzone attempts to reframe crude oil price and its predictive signal for future demand.

As quoted in the market news:

The synopsis is simple: when monthly average oil prices fall over a three month period, historical data indicates a high probability that world demand for oil will be lower six months after the sell-off. We urge you to read on for the silver lining that goes along with this cloud.

We looked at average monthly WTI crude oil prices going back to the beginning of 2005 and compared these three-month changes with future world crude consumption patterns. In 62 percent (i.e. 15 of 24) of the observations occurring between December 2004 and July 2011, the global demand for crude dropped in the subsequent six months. The data was even more damning when the three-month change prices showed greater than a ten percent decline. In every one of these cases, the demand for crude was lower six months after the price decline. As we have recently experienced an 11 percent drop in oil prices, one could easily speculate on diminished oil demand in January 2012.

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