Emerging demand for oil is strong, but developed markets still lead


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By  Tim Seymour

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.

Brent crude (quote) — 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  quote) 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  USO  (quote) — which holds West Texas contracts — and  BNO  (quote), which holds Brent.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Futures , Commodities
Referenced Stocks: USO, BNO

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