Oil prices are caught up in the commodity rout that has been driven by a rising dollar and concerns about global demand.
The dollar is exceeding par against all major currencies on the increasing belief that the Federal Reserve will raise rates in December and fear that the rise in terror attacks will cause many to find safe harbor in U.S. backed assets is putting pressure on commodity prices. Still the inability of oil to close below $40 a barrel is raising the possibility that we are very close to a bottom.
One reason that bottom may be near is rising oil demand. While we keep talking about a global slowdown, actual oil demand is rising. In fact Reuters reports that a resurgence in U.S. driving continued with force in September, as motorists logged 259.9 billion road miles, a 4.3% bump up from last year and the most in the month's history, according to new data released Friday by the U.S. Department of Transportation.
The strong September figures contributed to a record breaking year for road miles in the United States, bucking predictions that Americans have lost their appetite for driving as the population ages and the youth migrate more to urban areas. Year to date, drivers have logged 2.36 trillion miles on U.S. roads, the highest figure through September, in history and a 3.4% jump compared to the same stretch last year, DOT figures show. The year-over-year percentage increase is the largest since 1997, data shows.
"It's a huge number," said Phil Flynn, an analyst with the Price Futures Group. "It shows you that drivers are being inspired by the low prices. It also shows you that the economy may have bottomed out and is on the uptick." With the September 2015 estimates, the series of consecutive monthly mileage increases now stands at 19 months.
The fresh numbers are the latest piece of evidence showing a sustained U.S. road revival that has been fueled by a rout in global petroleum prices and a growing U.S. economy. The national average price for gasoline on Friday was $2.10 per gallon, down from $2.85 a year ago, according to AAA, the motorists' advocacy organization. Driving activity in the United States is closely watched since the country accounts for about 10% of global gasoline demand.
The other issue is whether or not OPEC is going to try to prop up oil prices. Saudi oil minister Ali al-Naimi said they will work with other OPEC members and producers to stabilize the market. They had better according to Venezuelan oil minister, Eulogio Del Pino, who is saying that oil could fall into the mid $20 a barrel area. They are using this big drop prediction to urge OPEC to cut production at their Dec. 5 meeting.
The other key to the crude oil market is the dollar that is soaring. The U.S. dollar is becoming the safe haven in times of terror and because of the odds that the U.S. will raise rates. San Francisco Fed John Williams continues to say that there is a strong case for a December lift off.
Yet global demand is on the rise as demand growth figures seem to contradict the doom and gloom forecasts. While the world has an unprecedented glut of oil right now, we feel that could change. U.S. production is showing more signs of peaking after the Baker Hughes oil rig count fell by 10 to 564 this week, according to driller Baker Hughes.