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And then, well, er, um… about that oil shock…

And about those rate expectations. Turns out it might be time for a rethink

On Tuesday, benchmark West Texas intermediate crude wandered into technical bear territory, dropping to near US$43 a barrel — a 22-per-cent decline from the 52-week high hit in January. It fell further Wednesday, by another two per cent, despite news from the U.S. Energy Information Administration that showed crude inventories had declined more than expected.

That inventory number should have buoyed oil markets, but pessimism seems to have set in. And not without reason.

It comes down to supply and demand.

On the demand side, the Organization of Petroleum Exporting Countries (OPEC) and some others express official optimism that a resurgent global economy will offset the supply glut. But the evidence for that demand renaissance has a few holes in it.

In Japan, the world’s fourth largest oil consumer, imports fell by 13.5 per cent last month, but that’s consistent with the long-term trend: according to the EIA, demand has fallen by nearly one-quarter over the past decade.

In the United States, the expected warm-season surge in gasoline demand has failed to materialize, and the EIA predicts total petrol consumption growth this year will be basically flat.

China — the world’s biggest net importer — has a big supply problem of its own. Gasoline and diesel reserves are so high that some of the country’s biggest refineries are poised to shut down for the entire third quarter, amounting to about 10 per cent of China’s total refining capacity, according to Reuters. That doesn’t bode well for resurgent global demand, at least not this year.