Shale production keeps pressure on oil

Shale Rocks!

Shale production continues to rock the global oil market and is making our target of $88 a barrel looking more likely any day. Since crossing $100 a barrel, which I equated to crossing the Rubicon, oil (NYMEX:CLZ13) has had its biggest monthly drop of the year. Oh sure, some will try to tell you that it is all about the Fed tapering and strong manufacturing data, but really we know it is because shale rocks!

Even Germany is reassessing its outlook on the impact of the U.S. oil production. Reuters reports that “the U-S.-led shale boom will have a lasting impact on global energy prices and push crude oil prices down to $80 a barrel, according to an analysis by Germany's BND intelligence agency. The BND said the U.S. shale boom would have a greater impact on global markets than it predicted.”

Of course drivers are already seeing prices fall in what is a new era of lower gas prices (NYMEX:RBZ13). As I have written before, the rise in U.S. oil production and the change in our energy mix will usher in a new era of gas prices. Obviously on a day-to-day or week-to-week basis those prices can be impacted by storms and geo-political and refinery events but the longer term trend is lower and it is going to be a big boom for the U.S. economy.

Business Insider says that “Falling energy prices are contributing to gains in real wealth and income: “Retail gasoline prices have declined more than 30 cents/gallon over the last two months, to $3.28/gallon as of Thursday, according to the national average pump price compiled for AAA. November gasoline futures have declined by a similar amount.”

We estimate that the CPI for gasoline declined by roughly 3% to 4% in October, after seasonal adjustment. If retail prices hold near current levels, the CPI for gasoline in November would be roughly unchanged after seasonal adjustment. Over the last eight weeks, the spot price of WTI has declined approximately $15 to near $95/barrel.

They go on to say that final sales to private domestic purchasers will improve from 2.3% in Q3 to 3.2% in Q4 thanks to a jump to 3% from 1.7% in personal consumption expenditures, which in turn should be, "aided by falling energy prices and large increases in housing and equity wealth." The group is holding Q4 GDP forecasts at 1.7%, citing "the government shutdown, ongoing and previously anticipated declines in federal spending, and a negative swing in inventory investment that we expect will subtract approximately 3/4 of a percentage point from GDP growth." Overall, they say, GDP growth will remain "moderate in the near term."

Bloomberg Reports that “ In a China’s Communist Party leaders will enter a policy-making summit this week with the economy on an upswing, services and manufacturing surveys show government on an upswing, services and manufacturing surveys show.

A non-manufacturing Purchasing Managers’ Index (CPMINMAN) rose to the highest level this year in October, a government report showed yesterday. The increase follows faster-than-estimated growth in two manufacturing indexes last week.  Signs of sustained strength in the world’s second-largest economy may give President Xi Jinping and Premier Li Keqiang more confidence in tackling reforms. At the same time, excessive credit growth, rising local-government debt and weaker export momentum may cap a stronger recovery from a two-quarter slowdown. “Growth momentum will still be relatively robust” in the fourth quarter, said Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong. “The government will tone down its pro-growth rhetoric but there won’t be a significant tightening of monetary policy as new leaders still need a stable economic and financial environment to consolidate their power base.” Lu estimates gross domestic product will rise 7.7% in the fourth quarter from a year earlier, down from 7.8% in the July-September period.  China’s top party officials will meet in Beijing from Nov. 9-12 to map out a blueprint for reform as the country heads for its slowest growth in more than two decades.

GDP will increase 7.6% this year, according to the median estimate of 52 economists surveyed by Bloomberg last month. That’s down from 7.7% in 2012 and the same pace as 1999, which was the weakest expansion since 1990. Growth may slide to 7.4% in 2014, according to the median projection of 47 analysts.

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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