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
One economic advisor decides to step down and the markets go crazy. Really? In the meantime, in the real world, oil demand is surging, and supplies are tightening as global demand continues a rampage. In the U.S. we are facing a supply squeeze because of another big drop in Cushing Oklahoma delivery stocks. Forget Gary Cohn. Cushing, we have a problem.
The Energy Information Administration (EIA) released another very bullish inventory report, which you would not know by watching the market action. Fear trumped reality as the departure of Gary Cohn caused turmoil and a sign to those who want to believe it, an all-out price war. Yet, if you look beyond the fear, you have an oil market that is seeing the strongest global demand in decades. It also is seeing the world’s largest oil consumer see their supply drop to fumes in one of its major storage hubs.
The EIA reported that supply fell by 605,000 barrels in Cushing, Oklahoma. That put Cushing supply at the lowest levels since 2014 and helped lead to a smaller by 2.4-million-barrel crude supply build. You can tout U.S. oil production, which increased to 10.369 million barrels a day, but it does not do you a lot of good if you can’t rebuild supply when refiners are in maintenance. U.S. crude oil refinery inputs increased slightly to 15.9 million up 53,000 barrels per day as refiners upped runs to 88.0% of their operable capacity. U.S. oil exports did play a part by increasing by 608,000 barrels as U.Ss oil goes to feed an oil hungry world.
Despite trade war, fears the reality is that nothing has happened yet. Oil demand is on fire despite predictions by some agencies that it would not be. Yet, it will be demand that drives prices, not shale or even OPEC cuts. That sentiment is shared with EXXON Mobil. Exxon told Bloomberg News that ” Soaring demand is the main reason for the rebound in oil prices — but if the economy falters, crude could tumble back to $40/bbl, according to Exxon Mobil. Copycats by OPEC countries have helped, but economic expansion is what’s “really driving demand at levels much higher than recent history,” CEO Darren Woods said Wednesday in a presentation to analysts in New York. “When that demand starts to tail off, if Permian production continues to rise, I think that you’re going to see a different rebalancing of the market and OPEC will have to make some calls around how they want to manage that,” Woods said.
Yet, it is what Exxon Mobil says next that may leave the market undersupplied. “Exxon can’t rely on short-term market swings to make long-term investment plans, so the company tests its decisions with oil at $40/bbl, Woods said. “You could find yourself back in there, depending on how this all plays out.”
So, fear of $40 a barrel means that Exxon won’t make the investments that the oil market seems to be screaming for right now. In other words, if the trade war fears are over hyped and the economy keeps growing like it is, then we are going to be undersupplied.
The Cohn craziness did not cause people to stop driving their cars, as far as I know. I don’t think it caused anyone to cancel their flights. It’s all about the demand. Demand for oil products, according to the EIA, averaged 20.3 million barrels per day, up by 3.4% from last year where demand was exceptional. Gasoline demand is at a near record 9.0 million barrels per day, up by 3.3% from last year. Distillate fuel demand was at 4.0 million barrels up 0.6% from year. Jet fuel demand really soared to the wild blue yonder and is up 18.3% compared to last year. Gasoline stocks fell by 788,000 barrels, distillate supply down by 559,000 barrels.
Questions? Ask Phil Flynn today at 312-264-4364
A Subsidiary of Price Holdings, Inc. – a Diversified Financial Services Firm. Member NIBA, NFA
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
Don’t let Cohn’s craziness and shale pipe dreams talk you out of putting on your summer fuel hedges. I spoke to too many folks that were burned this winter by believing the shale hype, assuming that was going to keep prices low. When the Cohn thing levels off, oil will have to face the strongest demand growth we have seen in a decade so make sure you respect the upside risks. Get the full story on the Fox Business Network or call me at 888-264-5665 or email me at firstname.lastname@example.org
Questions? Ask Phil Flynn today at 312-264-4364