Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

2019 Demand Growth Outlook Remains Despite Falling Oil Prices

Published 12/13/2018, 08:33 AM
Updated 07/09/2023, 06:31 AM

Deficits Don’t Matter

Deficits don’t matter. No, I am not talking about budget deficits, but oil supply deficits. Despite mounting evidence that we are moving into a crude oil supply deficit in the near year, fear and hedge fund blow ups have the oil market blissfully unaware.

In the latest report by the International Energy Agency (IEA) released today, the global oil market could move into deficit sooner than expected thanks to OPEC’s output agreement with Russia and Canada’s decision to cut supply, said the International Energy Agency according to Reuters.

The Paris-based IEA kept its 2019 forecast for global oil demand growth at 1.4 million barrels per day, unchanged from its projection last month, and said it expected growth of 1.3 million bpd this year. Uncertainty over the global economy stemming from U.S.-China trade tensions could undermine oil consumption next year, as growth in supply gathers pace. “For 2019, our demand growth outlook remains at 1.4 million bpd even though oil prices have fallen back considerably since the early October peak," the IEA said.

Yet the oil market is still out of touch with fundamentals as historic shifts in volatility and increasing erratic geopolitical events has the market forcing liquation to the detriment of the oil producers globally and in the U.S. The crazy swings in the oil price will hamper investment and lead to situations where we could become significantly undersupplied in the near year.

Yet the oil market can’t look beyond the next few hours as every rally is met with selling by hedge-funds trying to hang on for dear life. Bloomberg News reported that due to the historic volatility an estimated 174 hedge funds were liquidated in the third quarter. “Some of the biggest names have been caught up in the melee. Jon Jacobson’s $12.1 billion Highfields Capital Management LLC is returning client money after two decades, joining other well-known operators including Richard Perry’s namesake company, Eric Mindich’s Eton Park Capital Management LP and John Griffin’s Blue Ridge Capital LLC, which have all exited the industry over the past two years. Leon Cooperman, meanwhile, plans to convert his firm into a family office at the end of the year.”

Yet despite the turmoil in the futures and equity market the physical market for oil is only going to get tighter and at some point, prices are going to have to reflect that. Even as yesterday’s Energy Information Administration (EIA) seemed to disappoint on headline numbers (mainly because it was not quite as bullish as the American Petroleum Institute version) we did see overall petroleum use in the U.S. come within a whisper of all-time high demand. The EIA reported that total demand on the U.S. system increased to 27.021 million barrels a day just short of the July record of 27.068 million barrels per day.

The EIA reported that U.S. commercial crude oil inventories decreased by 1.2 million barrels from the previous week. Not as big as the almost 11 million barrel draw from API. A drop in U.S. exports and a bigger than expected increase in Cushing, Oklahoma in part explains the defiance. Still the discrepancies from reporting agencies is only adding to the market volatility.

The EIA also reported that gasoline inventories increased by 2.1 million barrels last week and are about 3% above the five-year average for this time of year. Finished gasoline and blending components inventories both increased last week. Distillate fuel inventories decreased by 1.5 million barrels last week and are about 8% below the five-year average for this time of year. Propane/propylene inventories decreased by 3.2 million barrels last week and are about 5% below the five-year average for this time of year. Total commercial petroleum inventories decreased last week by 6.0 million barrels last week.

Demand is strong. The EIA says that motor gasoline product supplied averaged 9.1 million barrels per day, down by 0.1% from the same period last year. Distillate fuel product supplied averaged 4.1 million barrels per day over the past four weeks, up by 1.8% from the same period last year. Jet fuel product supplied was up 3.0% compared with the same four-week period last year. So right now, fear is outweighing reality. Yet we may pay the price for that fear now with less investment, less production and ultimately higher prices.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.