Down but never out. The U.S. energy industry had an amazing comeback raising refining runs to almost pre-Hurricane Harvey levels in what can only be described as a heroic effort. Despite the flooding and power outages, the players in the energy industry rose to the occasion to try to get production back to normal even as many of those workers lost their homes. Output at the refineries hit an above average 88.6% of capacity running 16.21 million barrels a day of oil to meet very strong demand. That helped gas supply rise for the first time in four weeks as gasoline demand rose again. U.S. crude production rose to 9.55 million barrels per day last week to pre-hurricane levels. Still, oil inventories fell by a 1.8-million-barrel decline in U.S. commercial crude oil inventories for the week to September 22, to a total 471 million barrels.
U.S. oil exports also surged to a record as refiners around the globe look to the U.S. for light oil to try to replenish the supply that is tightening around the globe. Yet, at the end of the day, you must admire the work of the energy industry that is often underappreciated for its valuable contributions to the U.S. and global economy. This comeback shows the grit and determination of the American energy worker and they should be commended for this amazing energy comeback.
While we had to fight misconceptions about shale oil production and underreporting of demand we now may have a price for that as the wrong perception about the fundamentals led to underinvestment. Now with demand growing at an incredible pace. We predicted this all in our “Summer Solstice Turning Point for Oil” webinar which you can still get. And because many bought into the bearish arguments and probably kept prices lower than they should have been we should see prices go up on the upside. We predicted that prices would double from the June lows and it looks like we are still on target.
We never wavered in our long-term bullish outlook even as we had a pullback in the first half of the year. But it is clear that the pullback was based on the false narrative that OPEC would cheat, shale oil production would get to over 10 million barrels a day and that global demand would be weak. Now if that was true then and none of that is true now. We said that oils crash a year ago was a generational bottom and recent supply versus demand data is confirming that. That means we still have more to go on the upside.
In fact, Reuter is reporting that global trade is growing at the fastest rate for six years which is helping oil. They point to growing freight demand is helping to rebalance the oil market and lift prices, which should, in turn, raise incomes for many commodity-exporting countries and stimulate further freight growth and fuel demand in 2018. After two years in which gasoline was the main driver of global oil demand in 2015/16, demand growth is rotating to distillate fuel oil, and that looks set to continue through 2018/19.