Global oil demand forecast cut again

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The dichotomy between oil demand and oil's price continues. The International Energy Agency cut its global oil demand outlook for the eighth straight month in May, due to the U.S. and global recessions.

The IEA now expects daily global oil demand to total 83.2 million barrels per day (bpd), down 230,000 bpd from its April estimate. What's more, the IEA predicts 2009 global oil demand will fall three percent -- the most since 1981.

Further, IEA, energy advisor to 28 nations, said the recent roughly 35 percent surge in oil prices to about $60 per barrel was misplaced. The U.S. and global recessions have sapped demand and inventories are high, so much so that oil producers are storing oil at sea in oil tankers. Moreover, the IEA said a recovery in oil demand is still quarters away. The price of oil, which had shown considerable strength recently on talk of a bottom to the U.S. recession in Q3/Q4, Thursday fell from recent highs, declining $1.23 to $56.79 per barrel.

Two other major energy commodities also declined on the IEA report. Wholesale gasoline fell about two cents to $1.67 per gallon and heating oil declined about 2.5 cents to $1.46 per gallon.

"We do expect a tapering off in the demand contraction, but we are still left with a very big drop in demand and, in our view, recovery really doesn't start to take root until 2010," said David Fyfe, editor of the IEA report, in The Wall Street Journal (subscription required) Thursday.

Trader is in the red, big time

That potential decline in oil's price can't occur soon enough for Energy Trader Jim Dietz. Dietz, an oil bear with numerous contracts, has seen all of his contracts fall into deep-loss territory during oil's rise to about $57 from $47 a month ago. Dietz has calculated that oil will retest lows below $40 later this year.

"Oil's price rise this spring has been one of biggest splits between supply and price that I've seen in the oil market in 20 years. The world is awash in oil, so it should not be anywhere near this price. A weak dollar does boost oil but it can't boost it this much," Dietz said. The dollar, lower for this week against the euro and pound, strengthened about one-half cent Thursday against each, to $1.3560 and $1.5095, respectively.

Bearish calculation or not, Dietz said he will be stopped-out for losses with most of his short trades if oil hits $65 per barrel. "It would be one of my worst trading losses ever," Dietz said.

Oil Analysis: Will oil prices retreat as the IEA suggests they should? Or will the best laid plans of mice and men like Dietz go awry? Stay tuned. Dietz, who implemented the technically-correct trade, was today within a few paces of incurring large losses, which underscores the complexity and high risk involved in trading oil futures. Even the most talented, experienced, professional oil traders with the most sophisticated support systems and ample liquidity can incur massive losses in this market, sentiment in which shifts unpredictably.

Hence, if you're a typical investor considering dabbling in the oil futures market to "pick up a few extra bucks," you may want to reconsider: you'll undoubtedly save some money if you do.

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