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Oil May Be A Bright Spot For The U.S. Economy Right Now

Published 08/29/2019, 04:23 AM
Updated 07/09/2023, 06:31 AM

Right now, discouraging economic data and negative indicators seem to be coming from everywhere. Some recent examples include: a major downward revision of the number of jobs created last year in the United States; falling yields on U.S. Treasury bonds; a report that German business confidence is at its lowest point in seven years; and data showing lower than expected numbers for Chinese consumption, investment and factory production. Many economists see these as indicators for a looming recession.

However, amidst all of this depressing news, the U.S. oil market is a bright spot. Production, consumption and export data all reveal a robust industry which inidcates positive signals for the overall U.S. economy.

According to the EIA, U.S. crude oil inventories declined by 10 million barrels last week. This is a major draw. Most analysts predicted a draw of only about 2 million barrels, though the data earlier released by the API indicated that 11 million barrels of oil had been taken out of storage.

Oil Weekly 2016-2019

Oil prices jumped on Tuesday when the API data was released and, after the EIA data confirmed the large stockpile draw on Wednesday, we saw Brent up nearly 1.9% and WTI rise 2.8%.

Crude oil use wasn't the only positive economic indicator. The EIA report also showed that stockpiles of gasoline and distillate (used for diesel fuel) declined.

Gasoline consumption in the U.S. has been strong over the summer, in contrast to other gloomy economic indicators. In fact, strong fuel demand has confounded economic analysts who believe the U.S. is heading towards a recession. Many of these analysts jumped on last week’s EIA report, which indicated that demand in the U.S. could be weakening. That report showed that gasoline stockpiles increased by 312,000 barrels and that fuel demand declined by 306,000 barrels per day.

However, the very strong demand numbers revealed by this week’s EIA report are evidence against the argument that the United States is on the verge of a recession. Not only is domestic fuel consumption strong in the United States, but the U.S. also exported 3 million barrels of oil per day last week. This is a sign of global economic strength.

All of this comes despite worsening trade relations with China. At the same time, U.S. oil production reached a new record high of 12.5 million barrels per day. New pipeline infrastructure in the bottlenecked Permian region is also facilitating the movement of more crude oil to the market.

Of course, one bullish report from the EIA does not erase countless economic indicators pointing toward economic slowdown. However, the EIA reports on oil production and consumption have generally promoted a bullish stance throughout the summer. Strong consumer demand for fuel in the United States should give those forecasting an imminent slowdown a reason to pause.

According to many oil analysts, the physical oil market is tight. In fact, prices should probably be higher given how tight supply and demand is right now. Speculation about future demand weakness and impending recessions are keeping prices lower at the moment. It’s important to keep an eye on oil and other economic data to see whether this economic slowdown is really on the way or whether it's just the current market narrative being fueled by anxiety.

Latest comments

Thank you for a comprehensive article. I don't have to look further on this topic today.
Nice article as always Ellen but I have to add that the rally on the US stocks for the past 10 years is unsustainable and therefore we are having plenty of signs here and there, mostly from EU and China, that their economies are getting into deep waters and with all the quantitative easing the fall will be unprecedented. Oil runs parallel somehow and unless there is a problem in the Middle East it will continue to plummet with the high production numbers of USA. They are taking slowly market share from OPEC+ members and at some point will have some market crash. . . Unemployment rate is very low but most of the jobs are poorly paid and low caliber so once the bubble burst the domino effect will be unseen. I saw the previous crisis coming but I am no public person so I can tell that in less than 1 year we will be entering into troubled waters. Gold above 2k$/oz for sure.
Iran is also supported by EU and if a new deal with USA comes up all the oil in floating storages will be quickly up and once again the market will be floaded with oil and Electric Vehicles from EU regulators, so I do not see any bright spot in OIL market and some of the shale producers will halt operations if price crashes below their break even costs. . Only a trade deal with China may prolong few months of entering into recession globally but I see no way out.
Enjoyed reading your article, Ellen! Thanks for sharing and keep up the good hard work ;)
yeah decrease in oil Inventories is bullish sign for d Commodity but the fact that United State and China Trade war still remain a concern. the economy Growth isn't that good. so we should be careful with bullishing Buck.
People use more fuel on vacations. I would advise to be careful on taking this data as bullish.
People are working again. Job numbers are great. The U.S. SPR is selling surplus right now too. This is a testament to the strength of the US oil market. The US economy is strong right now. Good times for the U.S. worker.
This chic finally went bullish...too funny
Don’t call me a “chic”
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