t doesn’t happen often, but our oil market prediction of July 9th looks spot on, and for all the right reasons..

We argued that demand would be slowing (mentioning a few indicators), supply would ultimately increase, and guess what happened?

Here some titbits from Bloomberg:

• Gasoline supplies rose 2.85 million barrels last week, the Energy Department reported. Stockpiles of distillate fuel, a category that includes heating oil and diesel, climbed 2.42 million barrels. U.S. fuel demand averaged 19.9 million barrels a day, the lowest since January 2007.
• Demand has dropped for three straight weeks, the Energy Department report showed. U.S. fuel consumption averaged 20.3 million barrels a day in the past four weeks, down 2.1 percent from a year earlier, the department said.
• Refineries operated at 87.1 percent of capacity last week, down 2.4 percentage points from the week before, according to the department. It was the lowest utilization rate since the week ended May 9.

Another titbit from Yahoo:

• “We’ve grounded airplanes. People are driving less, they’re trading in their SUVs,” said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com. “For the foreseeable future — at least for the next 6 to 12 months — we have demand destruction.”

And the dollar might be another impetus:

• Oil and other commodities may drop further and the dollar increase if the Federal Reserve boosts interest rates to curb inflation. Philadelphia Fed President Charles Plosser yesterday said rates should be raised.

Some easing of political tensions with Iran might also have helped.

Without major incidents (supply disruptions or political), we don’t expect oil to move decisively above its previous highs before the economy starts improving. It’s just the laws of supply and demand, we think the demand reductions coming from the US (and Europe’s economies are also slowing down a lot) will outweigh the increase in demand from the likes of China and India.