Rising crude oil demand and falling crude inventories indicate that crude oil may have set a bottom for the year, writes Phil Flynn.
Oil traders have gone bottom fishing in oil on a hot, late summer trading day. While commodity funds reduced long positions last week, it appears that some are already starting to regret it. Oil demand expectations are back on the rise as the Federal Reserve looks to cut rates while we will start to see global inventories fall.
Even the outlook for shoulder season has crude stock builds perhaps lower than expected as OPEC cuts remain in effect and shale oil producers struggle. There is talk that new pipeline capacity at the end of the year has already been priced in and is one reason oil has not overreacted to increasing geopolitical risk in regard to Iran and risk factors in the Strait of Hormuz. Yes, Iran is still holding onto that UK tanker.
As long as crude oil holds recent lows, those lows can remain for the rest of this year. OPEC production cuts along with more global economic stimulus will defy normal seasonal price weakness. It is unlikely we will see the return of Venezuelan oil supply anytime soon or Iranian oil for that matter. U.S. shale producers are in major cut back mode and recent drilling activity reports suggest that U.S. oil production will fall short of pumped up market expectations.
We got mixed signals from private intelligence services regarding Cushing, Oklahoma crude supply. One service reported a massive 1.5-million-barrel draw at the Nymex delivery hub, another one a more modest 106,00- barrel draw. Quite a spread! Reminds me of the EIA and API reports.
Big oil surprise!
Reuters reports that, "BP's strong increase in oil and gas production helped them offset weaker crude prices and refining profit to beat second quarter profit expectations on Tuesday, lifting its shares. BP’s result contrasts with Total SA (TOT) and Norway’s Equinor ASA (EQNR), which both reported sharp earning drops and builds on a steady recovery following deep cost cuts since the 2014 downturn, project start-ups and last year’s $10.5 billion acquisition of BHP’s U.S. shale assets," according to the Reuters report.
RBOB (unleaded gasoline futures) prices look like they will rebound from recent lows, but despite the loss of that Philadelphia Solutions refinery, gasoline prices at the retail level are down. AAA as of yesterday put the national average at $2.73. AAA says that while this is 2¢ more expensive than on the same day last month, it is 3¢ cheaper than last week and 12¢ less expensive than a year ago. “Gas prices this month are on average a dime less expensive than in July 2018. These less expensive gas prices have encouraged summer road trips as evidenced by robust demand numbers since May,” said AAA spokesperson Jeanette Casselano, adding, “Right now, pump prices are poised to push even cheaper going into August.”
On the week, every state but Michigan saw gas prices trend less expensive. The majority of the top 10 states with the largest weekly declines saw gas prices move a nickel cheaper since last Monday.
Natural gas is still under pressure as record production is matched with the end of the oppressive heat. Short-term natural gas prices could face another big price break. Long term, at some point, low prices will cure low prices but that may still be years away.
Things are getting crazy for the MoneyShow San Francisco, Aug. 15-17! Not only do I hope to see you at my Master Class , I will also be speaking at the opening ceremonies sponsored by CME Group. Sign up for the MoneyShow from that city by the bay. Don’t leave your heart, just wear a flower in your hair and feel all right on a warm San Francisco night.
