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’s early opening optimism on a possible resolution of the government shutdown gave into global economic pessimism after China’s Market Manufacturing Purchasing Managers’ Index (PMI) for December dipped to 49.7 from 50.2 in November, much weaker than expected. That number showed that the trade war is taking its toll as manufacturing in the U.S. and China seems to be easing. The slowdown fears caused global stock markets to reverse opening gains, putting more pressure on OPEC to stabilize the petroleum markets, where all the major oil producers, Saudi Arabia, Russia and the U.S. saw production hit record highs. So let the cuts begin.
Today is the day the OPEC cuts go into place, and by all measures we will see high compliance. There are reports that Saudi Arabia has already reduced exports of oil to the U.S. to zero and are on track to over comply to their agreed upon OPEC cuts. Doubters will see record compliance to cuts.
They will need to as U.S. crude oil output hit an all-time high of more than 11.5 million barrels per day in October, according to the Energy Information Administration (EIA). Reuters reported that U.S. crude production rose 79,000 bpd in October to 11.537 million bpd, the U.S. Energy Information Administration said in a monthly report. The EIA revised its September oil production figure down by 17,000 bpd to 11.458 million bpd.
Russia’s oil production also recently reached a post-Soviet high, averaging 11.16 million barrels a day, up 1.6 percent from 2017. Saudi Arabia’s oil production has been at a record high this month—at between 11.1 million bpd and 11.3 million bpd in November. Saudi Arabia’s oil production has also been at a record high this month at 11.2 million bpd. So, they will cut.
What is amazing is with all that production supplies are not as high as one would think if the demand was really slowing that significantly. Global oil demand growth has not slowed that significantly, despite the warning signs we are getting from the manufacturing sector.
We feel that we will rebound in the new year as we expect to get a deal done with China and expect that the government will soon reopen. US demand is strong and the drop in gasoline prices should give the economy a boost. We think the slowdown fears are overstated and expect a big rebound.
Due to the holiday, reports will be released late. The American Petroleum Institute releases weekly data on U.S. oil inventories Thursday, the U.S. Energy Information Administration on Friday.
My Buddies at Gas Buddy are predicting that 2019 will feature a yearly national average of $2.70 per gallon, representing a 3 cent drop versus 2018, but warns that the national average could surge to over $3 per gallon as soon as May. Some of the highlights from GasBuddy’s 2019 Fuel Price Outlook include:
- The nation’s yearly gasoline bill will fall to $386 billion dollars, a drop of $2.5 billion over last year as the average household sees their annual gasoline spending fall slightly to $1,991, down $25 from 2018.
- The national average is forecast to rise as much as $1 per gallon from a low in January to a possible peak in May, but economic jitters could weigh heavily on where gas prices go in 2019.
- Over 90% of the country’s largest metro areas are at risk for seeing average prices hit $3 per gallon, including Atlanta, Boston, Chicago, Los Angeles, Miami, New York City, Philadelphia, Phoenix, San Francisco, Seattle, and Washington, D.C.
Make sure you stay tuned to the Fox Business Network for all of the latest breaking developments. Call to get my daily trade levels at 888-264-5665 or email me at email@example.com
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