Crude oil prices rebounded yesterday as the global risk to supply is risng at a time when global production may start falling. Not only are markets trying to assess the long term effect from the Alberta Canadian wildfires, but increasing risk to supply in Nigeria is making traders nervous. On top of that, Iran is signaling that it are ready to talk about a production freeze and the Energy Information Administration raised its price forecast for crude while predicting record U.S. gasoline demand.
Crude oil prices are on the rise as traders are starting to see signs of production destruction. What is production destruction? It is the opposite of demand destruction. When prices go too high we see demand destruction or demand fall. When prices go too low, we see cut backs in spending and investment that will call production to fall. We are now seeing the early stages of production destruction of a mammoth scale that will be felt for years to come.
Spring is busting out all over, and so is gasoline demand. Low gas prices are causing a buying frenzy at the pump as gasoline demand in the month of March hit an all-time record high. According to the American Petroleum Institute (API) the lowest average price for regular unleaded gasoline in 12 years has Americans guzzling gas like never before.
Who said it was refiner maintenance season? It sure does not feel like it. Once again U.S. refiners defied expectations raising runs a full percentage point to a summer-like 91.4%, according to the Energy Information Administration. The refining madness put U.S. crude oil refinery inputs at 16.4 million barrels per day which played a large part in the market getting a shock with a whopping 4.9-million-barrel crude oil draw. It isn’t July yet, is it?
Crude oil prices are going out like a lamb this March as hedge funds look to book profits from their largest net long position since May 2015. Hedge funds like to book profits at the end of the month because they get paid on the profits they made during the month, not to mention the first quarter of 2016, which ends today.