Economic reports threaten energy demand

One Bad Auction Don't Spoil the Whole Bunch Girl.

Yet at the same time one good auction does not solve all of Europe's problems either. The Portugal bond auction may have eased concerns regarding a total global market meltdown but them Beige Book and dismal demand numbers from the MasterCard Spending Pulse report as well as a downward revision to the demand outlook from the Energy Information Administration has oil traders questioning about the strength of future demand growth the total oil demand growth outlook. The first sign that things might not be so great was a report from The EIA’s much anticipated Short Term Energy Outlook. The EIA revised lower their outlook for demand because of what they see as a slowing economy. The EIA lowered their forecasted GDP growth number from growth projections of 3.1% and 2.7% for 2010 and 2011, respectively down to growth of 2.8% in 2010 and 2.3% in 2011. That decrease in economic optimism caused them to lower their crude price projection to the current average of $77 a barrel in the fourth quarter of 2010 and $82 per barrel in 2011, which also means lower gas prices.

The EIA said that it expects that regular-grade motor gasoline retail prices, which averaged $2.35 per gallon last year, will average $2.69 per gallon over the second half of 2010, down 7 cents per gallon from the average for the first half of the year? In 2011, higher projected crude oil prices combined with strengthening refiner margins are expected to boost annual average. Yet shouldn't gas prices be even lower especially if you consider recent demand trends? According to the MasterCard SpendingPulse report as reported by Bloomberg News U.S. gasoline demand slid to the lowest in six months last week, falling in six of seven geographic regions. The Report showed that consumers bought an average of 9.13 million barrels of fuel a day in the week ended Sept. 3, down 0.5% from the prior week, the second-biggest payments network company said today in its SpendingPulse report. It was the lowest level since Feb. 12 and third consecutive decline.

So what happened to the big Summer Driving Season Finale Labor Day? According to the report demand slipped 1.8% in the Lower Atlantic and Rocky Mountain areas, 0.4% in the Central Atlantic and Gulf Coast and 0.3% in New England and the Midwest. Fuel use rose on the West Coast, gaining 0.6%. Some of the Drop may indeed have been weather related as in the weather was lousy. Still according to Bloomberg and MasterCard consumption was up 1.7% from a year earlier, the 10th consecutive year-over-year gain. Averaged over four weeks, demand was up 1.1% from a year earlier. The MasterCard Report came out about the same time as the FED Beige Book which really did not inspire confidence in energy demand and in away was actually a bit depressing. The Fed says we are seeing a deceleration in the economy. Even car buffs know that deceleration means less energy demand. What probably kept oil above water was another Tropical storm this time called Igor which let's face it is an awesome name for a storm! Threat to the Gulf and oil operations too early to tell but stay tuned! And the API report was supportive. The API reported a much larger then expected drop in crude supply of the tune of 7.31 million barrels. If the EIA report confirms that we could get a rally. Stay tuned.

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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