Crude: Legging up

November 21, 2017 08:37 AM

It looks like crude oil is consolidating for another leg up as it shakes off political uncertainty in Germany--one of the reasons we pulled back yesterday. Market chatter has the Nymex delivery point falling at least one million barrels and some say the drop could be more than two million barrels. 

Last week the Energy Information Administration (EIA) reported that Cushing’s crude oil inventories fell by 1,504 barrels. The Cushing draws will continue as U.S. refiners are in a mad rush to keep up with distillate demand as supplies are the tightest we have seen in years, and are well below the five-year average. 

That will keep oil, which is unquestionably in a bull market, rising as refiner demand keeps a bid on all grades of crude. Brent crude, which is in the high $62 a barrel handle, will also be bid as European Refiners are looking to keep running and seasonal North Sea production issues are just up ahead. With a U.S. tax cut bill looking more likely like a done deal, that will at some point only add to the projected demand for oil.

I told Liz Claman on the Closing Bell on Fox Business Network that a tax cut bill over time might double the stock market over a period and would be wildly bullish for economic growth. While that might sound optimistic, there is historical basis to it. Now Goldman Sachs Co-Chief Markets Economist Charles Himmelberg is predicting that 2018 will be another year of strong growth for the worldwide economy. He and his team expect the global economy to grow 4% next year, in which there will be growth surprises to the upside.

A growth of 4% for the U.S. economy means crude oil prices well above $60 a barrel as demand will outstrip the shale oil producer’s ability to keep up with the growth. Oil bears are changing their tune as they are getting squeezed out by record longs. Predictions of surging U.S. production is falling short and the expected extension of OPEC production cuts will continue to drain global supply. Hedgers need to be hedged if they are not all ready as the risks pf upside price spikes are growing. 

The Keystone Pipeline finally won approval but TransCanada is not jumping for joy. While approving the Nebraska commission offered a new route that will likely be fought again in court: 10 years and counting for approval!

My buddy’s at GasBuddy have put out their over the river and through the woods, retail gasoline outlook. GasBuddy projects that Thanksgiving will see the highest average gas prices since 2014 as the country prepares for the busiest traveling weekend of the year. Yet, the average gas price in four of five U.S. states is lower than a week ago, coming as the number of Americans driving is expected to surge by 20% during the last Thanksgiving holiday, according to GasBuddy’s Annual Holiday Travel Survey.   

GasBuddy projects the national average gas price this Thanksgiving will be $2.53 per gallon, the priciest Thanksgiving in three years (2014: $2.79), though not as high as the peak on Thanksgiving in 2012 ($3.44). Additionally, average gas prices have risen 9 cents in the last month, the largest pre-Thanksgiving Day increase since 2007, when average prices rose 26 cents in the 30 days leading up to the holiday.  

“This year has been unique at the pumps. Gas prices spent much of the time in the weeks approaching Thanksgiving by rising when typically, they would be on a sizeable downward trend,” said Patrick DeHaan, head of petroleum analysis at GasBuddy. “On average Americans are paying nearly 40 cents a gallon more than last year, which means collectively we’re spending $800 million more on fuel over the Thanksgiving travel period. Drivers should pay close attention to prices to avoid overpaying.”    

According to GasBuddy’s Annual Holiday Travel Survey, despite higher gas prices, travelers are driving longer distances. The year 2017 is expected to see a 4% increase in travelers driving for 10 or more hours over Thanksgiving compared to 2016

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.