Crude: There is something good going on

August 3, 2017 08:26 AM

There is something good going on in the global economy and that is translating to higher demand and higher prices for oil. While short sighted and economically challenged people always think the lower price for energy the better, fail to grasp the realities of global trade and the real economics of production. With U.S. gas demand at a record and global demand on the rise, it reflects good economic times to come. 

Crude oil demand was stronger than the oil bears could believe and gasoline demand hit an all-time high according to the Energy Information Adminstrations (EIA). Global gold demand  declined by 10% due to significant slowdown in inflows into Exchange-Traded Funds with many gold traders looking for safe-havens into the exotic world of crypto currencies.    

Demand for oil based refinery runs surged to an impressive 17.4 million barrels of oil a day at 95.4% of capacity. Strong gasoline demand also helped support the oil complex even as US oil production increased by 20,000 barrels and crude supply fell by a less than expected 1.527 million barrels. Gas demand is at a record 9.842 million barrels a day and that should help drive retail prices higher with increased geo-political risk from Venezuela. The death of gasoline demand predicted by some analysts looks to be greatly exaggerated.

Still, we did see a drop-in distillate demand which is somewhat seasonal but in recent weeks that sector has defied market expectations. U.S. exports of diesel have been surging as global trade and shipment of goods is feeding to those strong demand futures. Reuters reported that, “World trade volumes grew by 5% in the three months to May compared with the same period a year earlier, according to the Netherlands Bureau for Economic Policy Analysis (CPB). Trade growth came close to a standstill in the first quarter of 2016 but has been accelerating gradually since then especially from the fourth quarter onwards. Slumping commodity prices between the middle of 2014 and early 2016 hit consumer spending and business investment in most developing countries hard. The result was a sharp slowdown in trade as household incomes fell and new oil, gas and mining projects were postponed or cancelled.”

But now, we are seeing that rebound coming in the form of oil demand, which is good even if we must pay 10 or 15 cents more at the pump. The economy is growing and we must see prices get even higher to keep our slowing shale industry solvent. While shale debt levels have been reduced sub $50 a barrel, crude may cause it to start to fail. They need to get leaner and meaner to enjoy the coming oil price boom.  

The HINDU reported that gold demand in India jumped by 37 to 167.4 tonnes during the second quarter of 2017, buoyed by seasonal demand and improved rural sentiment, the World Gold Council (WGC) said in a report. The demand in the April-June last year stood at 122.1 tonnes, WGC said in its latest Gold Demand Trends report. However, the second quarter demand is lower than the five-year average and is mainly driven by the anxiety on the Goods and Services Tax (GST) roll out, which led to advance purchase towards the end of quarter,” WGC managing director, India, Somasundaram PR told PTI here.

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.