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Source: A/S Global Risk Management

Investors are hedging against post-crisis inflation

“We see a decrease in oil prices in the short run. But as the economic growth in the world returns the summer uptrend will continue“, says Thorbjørn Bak Jensen, Oil Market Analyst at Global Risk Management.

Investors will choose between buying dollars or buying oil – both at an interest rate of 0%. The dollar has a looming printing press in the back, whereas oil is a limited resource. The central banks and the governments cannot tighten their policies – i.e. increase interest rates and tighten budgets before they are certain that the economy is well off again. This uncertainty could be the basis of increased inflation. The market players have started making their choices and are hedging oil prices forward.

The financial crisis hit faster than expected and the market hit bottom in the first quarter of 2009 instead of the second. The various support packages have turned the development into an increase where oil prices are already reaching end of year expectations, according to Global Risk's annual oil market report from January 2009.

Global Risk is increasing its expectations for the third and fourth quarters to 67 and 75 dollars per barrel respectively. Prices are forecast to increase steadily during 2010 and 2011 and the expectations are 80 and 85 dollars per barrel respectively.

This week, Global Risk Management has published its Quarterly Oil Market Report August 2009 – a publication which describes the company's opinion on the current as well as the upcoming situation in the oil markets.

Short executive summary of the report “The Oil Market – Quarterly Outlook Aug´09”:

During the summer the US driving season has been one driver for the oil price increase from $50 to $75. Higher gasoline demand made refiners demand more crude oil as earnings on gasoline output increased. However, by the end of the summer the driving season lost steam and demand dived along with increasing output - especially from Chinese refiners.

Re-emerging China is another driver – or at least the surge in orders from support packages and loose monetary policy, which also supported the dry bulk sector. Now the dry bulk rates are falling again and it seems that raw material imports into China are stagnating as the support package effects wear off. This indicates that stock markets will fall and oil will follow.

In the short term the massive distillate inventories, which are 20% higher than last year, plus the 70 million barrels on floating storage, will put pressure on oil markets.

Refiners will after the end of the driving season face lower earnings and will decrease production, thus supporting product prices and depressing crude oil prices. After the setback, prices will resume their increase. The massive support packages from governments and central banks will, when the economy starts to recover, create inflation. Oil prices will be supported by this through 2010 and 2011.

The full report can be found at the following address:

http://www.global-riskmanagement.com/Our_services/Quarterly_oil_market_reports.aspx