Crude: Trumped up

December 28, 2016 09:03 AM
Daily Energy Markets Report

Crude oil prices are getting trumped up on a dose of economic optimism and signs that OPEC is serious about production cuts. Donald Trump is making Americans feel great again as consumer confidence came in at a 15-year high--the highest reading since before the terrorist attacks on the world trade center back in 2001.

The Conference Board said Tuesday that its consumer confidence index climbed to 113.7 in December, up from 109.4 in November and the highest since it reached 114 in August 2001. That confidence is being felt in gasoline demand that is running near a record for this year. Saudi Arabia is also confident that prices will rise in the near term, targeting an average price of $55 a barrel and even talk of $60 a barrel.

We are also seeing confidence that OPEC will follow through with production cuts. Even Venezuela, racked with debt, said it will cut 95,000 barrels per day (bpd) of oil production in the new year in fulfillment of a producer deal to reduce global output and strengthen prices per Reuters. Iran is taking advantage of its post sanctions world by doubling exports to Asia as it is exempt from production cuts until they get the production back up to the cap of 3.9 million barrels a day.

That optimism should be felt with inventors as gas going up ahead of the holiday demand period as well as demand for heating fuels should lead to a clean sweep of draws in all the major categories. So, I am looking for gas to be down 3 million barrels along with crude oil and distillates and refinery runs will increase by 1.0.

Gas prices may be going up almost every day but the sticker shock may by more felt in Mexico. Reuters is reporting that in Mexico gasoline prices will rise by as much as 20.1 percent next month compared to the highest recorded prices in December, as the government sets prices at the pump. The Mexican finance ministry said the widely-used Magna gasoline brand will rise 14.2 percent and will sell at an average price of 15.99 pesos (78 cents) per liter at retail, while premium fuel will go up 20.1 percent to an average of 17.79 pesos per liter. 

Natural gas is on the attack as record consumption is causing this market to roar. Back after a big jump yesterday, the market is trying to balance what should be a record withdrawal from storage and near term warmer weather forecasts. We feel this week’s draw could be around 240 bcf. 

The year is ending on a strong note and we have continued to keep our bullish outlook all year. I have always believed that the OPEC and non-OPEC deal would get a deal done and that the cut backs in Cap X spending in energy would reduce output to a point that an OPEC cut would make sense. Remember it was a year ago almost to the day when Saudi Arabia said they would continue to flood the market with oil. Now we have the first OPEC and non-OPEC cut since 2001. Energy has made an incredible comeback and the new year looks bullish and bright.

About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil 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.