Reader Michael forwarded the current issue of The Energy Report by Phil Flynn at Alaron. It contends that demand destruction is proceeding at a rapid pace. It also highlights an issue discussed in a recent research report by Deutsche Bank, that energy demand forecasts by recognized bodies such as the EIA have been high, and by a considerable degree.

From The Energy Report:

It seems like Mother Nature is the only thing supporting this market as demand destruction might have more long term impact on the market than anything Gustav can throw at us. Even after Katrina oil demand dropped and so too did prices….

Take for example the news from the Energy Information Agency that revised downward its June oil demand by a stunning number. The EIA said that US oil demand in June was 793,000 barrels a day less than previously reported. That is down a whopping 1.17 million barrels a day from the same period a year ago and the lowest level for any June since 1998. That comes out to be 5.6% less than a year ago….

What is becoming clear to the market is the demand pullback in the US is rising to the level of historic proportions. Even the EIA is now saying that the drop in demand should send oil below $100 a barrel. The Chief of the EIA, Guy Caruso, said that prices could fall below $100 a barrel on slowing global demand and rising production in the US, Brazil and Canada, and from OPEC states such as Saudi Arabia and Angola. While Caruso said “most of the risk is on the upside,” and that it was not the official EIA prediction but added that a scenario of falling oil prices is “now closer to 50-50” if worldwide spare production capacity continues to increase from the current 1.5 million barrels per day (b/d) to 3-4 million b/d while global oil demand softens. Caruso then says that that scenario is now more realistic than any time in the past five years.