The oil market is on the cusp of a new cycle, Goldman Sachs (NYSE:GS) said on Friday, with demand in the United States growing at a faster pace than in emerging economies such as China and India for the first time in a decade.
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That's likely to have profound implications for how oil markets operate, Jeffrey Currie, Goldman's influential chief commodity analyst wrote in a note, which says there will be a "new oil order".
Currie was one of the first oil analysts to predict that crude prices would surge last decade, driven by growing Chinese demand and tightening supplies. Now as U.S. shale production drives down prices for American consumers, the market may shift, he says.
"As oil demand leadership transitions to developed markets from emerging markets, this not only represents a significant fundamental shift, but combined with significant developed market-led production, this turns the previous commodity cycle upside down," Currie said.
The immediate impact may be subtle at first - Goldman is maintaining its price forecasts for next year for both North Sea Brent crude and U.S. benchmark West Texas Intermediate at $106 and $98, respectively.
In the long run, Currie expects three inter-related developments to flip the market on its head.
First, he writes, the boom in U.S. shale oil output should keep oil prices in the United States low and lead to a "substantial acceleration" in its economic activity.
Second, stronger U.S. growth will lead the Federal Reserve to scale back its monetary support, which is likely to strengthen the dollar. That should put pressure on emerging market demand by making oil and other commodities priced in the greenback more expensive for users of other currencies.
Third, weaker oil demand growth in countries including China and India should help keep markets well supplied, limiting inflation in developed countries.
"This new emerging commodity cycle is the exact opposite of the 'super cycle' where weak U.S. economic growth, exacerbated by a lack of domestic energy supplies and conflicts in key commodity-producing regions, helped facilitate more accommodative monetary policy," Currie said.
"U.S. policy reinforced emerging market demand growth and a weaker U.S. dollar, which largely offset the higher oil and commodity prices to emerging market countries," in the last decade.
Ultimately, the reversed trend will lead emerging market economies to "shift from being consumers to producers", Currie said forcing countries such as China to follow the U.S. path in tapping unconventional resources.
Since hitting a record of almost 21 million barrels per day (bpd) in 2005, U.S. oil demand has fallen by more than 10 percent to 18.5 million bpd last year, data from the U.S. Energy Information shows.
But in September, U.S. demand was up by 1 million bpd on the same month in 2012 - the biggest year-on-year leap since 2001 - while Chinese demand growth has been muted in the second half of this year.
Currie estimates total Chinese demand growth at just 230,000 bpd throughout 2013. Growth was as low as 70,000 bpd in October year-on-year.
U.S. demand has been boosted in part by the fact that gasoline prices are 15 percent lower in Chicago than in Singapore, Currie said.
Retail prices in the United States were at the lowest level in three years at the end of November, the EIA said.