How long can the good times last? The current energy cycle of high oil prices and strong global demand will continue-unless it is derailed by demand slackening off, according to analyst David Pursell of Pickering Energy Partners in Houston. Pursell has identified five variables that he believes provide solid insight into where oil demand is headed. These variables signal a bullish environment, but they do indicate demand growth may slow to about 2.5% this year, versus 3.5% in 2004. The five are: inbound loaded containers into the Port of Long Beach, California; the strength or weakness of the U.S. dollar; U.S. oil demand trends; refining margins in Asia for Minas crude; and subjective sentiment, as indicated by data and commentary from the International Energy Agency in Paris. Through April 2005, loadings into Long Beach were up 19% versus 2004. Because Long Beach is the second-busiest port in the U.S. and a major trade link with Asia, it serves as a good proxy for global and U.S. economic health, Pursell says. The currently weak U.S. dollar supports global oil demand growth, as it makes oil cheaper for countries to buy. "The only subjective indicator on our list is ...our assessment of the IEA Monthly Oil Market Report (highlights and editorial pages only)," Pursell says. "This captures sentiment surrounding global oil demand. It is a surprisingly good indicator...and remains bullish, although less so than several months ago." Refining margins in Asia are another proxy for the health of the world economy, especially in Asia. They are a bit softer now than they were a few months ago, Pursell says, but they remain much stronger than they were throughout the late 1990s. U.S. oil demand is about 20 million barrels per day, accounting for nearly 25% of global demand. Recent data from the U.S. Department of Energy's weekly petroleum status report show slower growth in American demand since January-but they remain positive, Pursell says. "Demand growth remains in positive territory. We will begin to worry about the sustainability of this cycle if demand growth slips below 1%. We are not close to this point but we remain watchful."
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