Crude oil prices fight to hold $40 a barrel, a level that--if breeched--would more than likely show bad things about the health of the global economy. While there is no doubt that part of the recent selloff in oil is a production story, the real momentum behind this selloff is real concerns about demand destruction from a faltering China and perhaps Europe, and just maybe the whole world getting prepared to go bust.
China economic concerns were given more justification after the Chinese preliminary Caxin purchasing managers' index (PMI) fell to a near six-and-a-half-year low to 47.1 in August. Actually, the reading was slightly better than feared, which is perhaps allowing some slight optimism and at least not created a stock market crash. We are seeing little pause in the gold rally, a little pull back in treasuries, and a slight bit of stability.
There are also conflicting stories on U.S. production. The American Petroleum Institute reported that the U.S. pumped crude in July at the fastest pace for the month since at least 1920. The report showed that the U.S. crude output climbed 8.8% to 9.52 million barrels per day. Yet, private forecaster Genscape said that, "After five years of increasing crude oil production in the U.S., the market is eagerly awaiting signals of slowing and decreasing crude production."
According to Genscape's most recent U.S. Crude Oil Production Report, our analysts expect a decline through the remainder of 2015 and into mid-2016. In Genscape's latest blog post explains that this decline in production is due to the significant reduction in drilling across the United States. The blog also describes how in the last three reporting months, Genscape's view on production has diverged from the EIA's as several maintenance events in the Gulf of Mexico this past spring may not have been captured in the EIA numbers yet.
Back to the API outlook, they said that total petroleum deliveries (a measure of demand) grew by 2.2% from July 2014 to average nearly 19.6 million barrels per day last month, according to API's Monthly Statistical Report for July 2015. "Demand for and production of oil and refined products grew across the board over the last year," said API Chief Economist John Felmy. "In fact, demand for and production of oil and refined products were the highest July in eight years, since 2007."
About the Author
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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