Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
Oil bears may have seen their shadows signaling at least 6 more months of a bull oil market. Or is it 6 years? Even with reports of U.S. oil production driving over 10 million barrels of oil a day, the decline in global oil stockpile continues to support the market. OPEC compliance to its production cuts are at a whopping 129% even as their production rose slightly. This compliance shows great restraint by producers that in other times may have been tempted to cheat or at least look to pick up for plunging production in the collapsing socialist state Venezuela. Even with shales best efforts to increase output, the realities are settling in with oil bears that they cannot match OPEC cuts a barrel for barrel, nor can they keep up with surging global demand.
Global oil demand is blowing away expectations as we had predicted. According to the EIA, global oil demand increased to 98.38 million barrels a day in 2017 up from around 92 million barrels of oil a day in 2015. There was higher consumption from the U.S. and China and Europe and we feel that we will add another 2 million barrels of oil consumption in 2018.
The ongoing impact of the Trump tax cuts will increase demand globally. The historic jump in stock prices after President Trumps election in anticipation of less regulation on small businesses caused a rally that is still making oil look cheap on a historic basis.
Even Goldman Sachs is seeing what the Energy Report has been writing for months and that is that the global oil market is in a deficit situation. Goldman says that the global oil market was in a 1.1 million barrel a day deficit in the fourth quarter of 2017.
That caused oil stocks, the major Organization for Economic Co-operation and Development (OECD) in country stocks, to fall by a massive 105 million barrels. That puts December stocks only 0.7% above the average with above average demand. Inventory data for the U.S., Japan, European ports and Singapore point to even further declines in inventories, currently 1% below their 5-year average.
In other words we have no oil glut! We have the tightest oil market we have had in years. Don’t blame bubbles or speculators or even oil companies. It is just good old fashion supply and demand. Jobs day and the impact on the dollar will impact crude. The weaker dollar makes oil cheaper in Euro terms and that will help support a booming U.S. oil export market!
Reuter’s is reporting “ Surging shale oil production in Texas and North Dakota is being felt on trading desks in Chicago, Houston and New York, where a brisk business in West Texas Intermediate crude futures is far outpacing contracts for London-based Brent crude. As the United States approaches a record 10.04 million barrels of daily production, trading volumes of so-called “WTI” futures exceeded volumes of Brent crude in 2017 by the largest margin in at least seven years. A decade ago, falling domestic production and a U.S. ban on exports meant that WTI served mostly as a proxy for U.S. inventory levels.“There was a time when the U.S. was disconnected from the global market,” said Greg Sharenow, portfolio manager at PIMCO, who co-manages more than $15 billion in commodity assets.
Two changes drove the resurgence of the U.S. benchmark. One was the boom in shale production, which spawned a multitude of small producers that sought to hedge profits by trading futures contracts. Then two years ago, the United States ended its 40-year ban on crude exports, making WTI more useful to global traders and shippers.
Questions? Ask Phil Flynn today at 312-264-4364
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Past results are not necessarily indicative of future results. Investing in futures can involve substantial risk of loss & is not suitable for everyone. Trading foreign exchange also involves a high degree of risk. The leverage created by trading on margin can work against you as well as for you, and losses can exceed your entire investment. Before opening an account and trading, you should seek advice from your advisors as appropriate to ensure that you understand the risks and can withstand the losses.
The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or futures. The Price Futures Group, its officers, directors, employees, and brokers may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Reproduction and/or distribution of any portion of this report are strictly prohibited without the written permission of the author. Trading in futures contracts, options on futures contracts, and forward contracts is not suitable for all investors and involves substantial risks. ©2018
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