Emerging Demand For Oil Is Strong, But Developed Markets Still Lead (USO, BNO)
We spend a lot of time talking up the demand from emerging markets for core commodities like food, but make no mistake about oil: for the foreseeable future, it is all about the G3.
Oil demand is dictated by developed market influences, especially that of U.S. consumers. The United States remains the world’s largest oil consumer, and so higher crude prices and higher gasoline prices here will likely lead to lower demand for oil.
This is not just a supply disruption trade brought on by fear that the Middle East will go up in a wave of revolutions in not only oil transit points like Egypt but full-fledged producers like Libya.
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Brent crude — the bellwether in Europe — traded between $70 and $80 barrel over the year to September 2010. Since then, better U.S. macro data have coincided with Brent rising to over $100 now.
Meanwhile, the U.S.-centric West Texas bellwether (WTI) has pushed above $90 a barrel.
Grades of oil closer to China are trading at higher levels. This is a question of proximity to supply as well as relative stockpiles of crude.
You can trade the arbitrage between these benchmarks via the United States Oil ETF (NYSE:USO) — which holds West Texas contracts — and the United States Brent Oil ETF (NYSE:BNO), which holds Brent.
Written By Tim Seymour From Emerging Money
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.
About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.
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