Nothing wrong with energy demand

Energy

Here’s the thing, we’re stuck. I like to call it the “new neutral”, some others like to call it the new normal.

Any way you look at things right now, they are what they are. You can hate on all the young celebrities that go from the Mickey Mouse Club to some bad teen movie to rehab, but that’s what it is. Same thing for the economy, carry your disbelief on your lapel like a red badge of courage, but it’s as good as it gets. That’s a rise in nonfarm payrolls of 230K on average for 2014 and a total of 1.385M. Remember folks, this is oil. We don’t care if they are part time, full time or temporary. All we care about is that they are driving from home to work and back. Anything in between is gravy in the tank. For those trying to say that gasoline demand actually contradicts those numbers, au contraire monsieur. Comparing the gasoline demand for the first half of 2014 (8.7M b/d) to our nadir in the first half of 2007 (9.2M), you have to remember that the EIA calculates imports and exports into those numbers.

We can compare the imports of 2007 (1.125M b/d) to the imports of 2014 (525K) for a difference of –600K to our demand stats. The exports are a little tricky, but we’ll keep it simple enough that Jessica Simpson might be able to understand. OK, not really. We get gasoline exports at about 14% of total exports in 2014 which has averaged 489K b/d. Back in 2007 we were so desperate for gasoline that exporting it was more of an accident or a swap for a first born. If we take 14% of that total number, we come up with 169K b/d. Using our duck logic; we’re looking at adding another 320K b/d to our demand number. You still with my teeming millions? Good, because we’re using some Calgon detergent here to clean up this mess and coming up with a pretty good ancient Chinese secret. By my numbers, we’ve been averaging a whopping 9.6M b/d for the first six months of the year. Booyashaka!

I know, this is more shocking than Taylor Swift having a hit album without breaking up with another boyfriend. Well let’s not sell ourselves short on gasoline production. Since the beginning of 2014 we’ve been averaging a stout 9.6M b/d of production (including blending). Slip back into 2007 and we were just under 9M (8.975M). Rise up and all hail the Union label. If you really want to get crazy, since the fuel switch in April, gasoline production has averaged 10.2M b/d with only one week barely slipping under 10M b/d (6/6/14 9.9M). Yes, WTI prices have helped keep prices lower, but make no mistake, our lack of imports of gasoline has too. On the other hand, we should be careful about calling out crude prices for why the price at the pump rises, demand is better than ever. I’ve been all over the huge auto sales numbers (2014:  16.1 million per month) and no matter how many people try to tell you that fuel efficiency is the reason for lighter demand, you just tell them to head on over to Oil Outlooks and I’ll show them the light.


EIA Guesstimates:

CRUDE -2.5M (NYMEX:CLN14– And so it begins.  We’re going to see a little drop off from some refinery issues last week (Borger, Sweeny, Trainer), but it’s not enough to stop the push in America to keep money flowing with margins this high.  The economics using WTI were boosted lately with all of the rally in Brent and that’s all we need to feed the hungry drivers in the United States.

GASOLINE -1.5M (NYMEX:RBN14– Despite all the fears of Hurricane Arthur tapering the demand here, we think that it was overrated.  We’re going to get a good number over 9 million barrels a day and if anything, I think that imports might see another decline from their already low levels. That leaves the supply here one last pitch to figure out how we’re going to make enough gasoline despite what seems like tepid demand.  A bigger draw here and we’re beating the drum for $4.

DISTILLATE +2.0M – Welcome to the strangest economic recovery in history.  We’re not going to get any demand from the commercial side and with refiners concerned about the added gas supply; yields are still too high for distillates.  Another week of a big number here and we’re going to force open the arbitrage to Europe.

UTILIZATION UNCH – For those who are aware of betting lines, this is a version of calling a game a “push”.  I hate to lean on this, but with the refineries down and others trying to make up for lost ground, it’s tough to see it on one side or the other.

CUSHING +1.75M – With Seaway Twin getting ever so closer to actually moving oil, we think that there’s more crude moving out of the big OK city.  Why don’t you fill me up buttercup?

 

About the Author

Carl Larry is president of Oil Outlooks and Opinions LLC. Follow him on Twitter (@oiloutlooks) or on his website.

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