All market fundamentals are pointing to increased demand for crude oil, notes Phil Flynn.
Oil prices are cautiously higher as the market wants to see action and not just promises on the U.S.-China trade agreement. Fitch, the ratings service, did say that U.S. trade tension with China has eased but have not been resolved yet and they did raise their Chinese economic growth forecast to 6% from their previous 5.7%. I would assume that if Fitch is right, then Chinese oil demand already at a record high and will only get higher.
Bloomberg News is saying so as well. They report that China is breaking records for crude oil imports and isn’t likely to stop soon as new refineries ramp up and hope grows that the easing of trade tensions with the United States will bolster the economy. “Even as economic expansion has slowed; the pace of growth still requires ever more oil. China imported an unprecedented 11.18 million barrels a day in November, which surpassed the U.S. high-water mark of 10.77 million set in June 2005. China’s purchases will probably continue to rise into next year as new refineries in Zhejiang and Zhanjiang increase runs, and as a widely anticipated tax rebate boosts domestic production of marine fuel.”
Heating oil or ultra-low sulfur diesel, led the way yesterday as French refinery strikes along with a fire at a Normandy refinery, is raising concerns about European diesel supply. It does not help that the new International Maritime Organization (IMO) will ban ships from using fuels with a sulfur content above 0.5%, compared with 3.5% starting Jan.1. Are my hedgers hedged?
Gasoline demand should make a comeback this week. The snow has moved and hopefully your relatives headed home after Thanksgiving. We get the American Petroleum Institute (API) report tonight. We expect a drop of 3.0 million barrels in crude and a 2.0 million-barrel drop in both gasoline and distillate. Still, going into a holiday week, we have to be on guard for computer driven corrections. Aside from that, the fundamentals for higher oil prices look solid. OPEC cuts, reduced trade tensions along with marked improvements in the global economy should send oil to retest the $63.50 per barrel area soon.
The Wall Street Journal reports that Congressional leaders struck a tax-policy deal late Monday, capping a long weekend of negotiations with an agreement that will extend lapsed and expiring tax breaks but won’t be as expansive as many lawmakers had hoped. The extended breaks included incentives for bio-diesel producers, which expired at the end of 2017 but would last through 2022 if enacted. A more generous medical-expense deduction for individuals that lapsed at the end of 2018 would run through 2020. A tax credit for short-line railroad maintenance would last through 2022. Breaks for brewers and distillers set to lapse this year would continue through 2020.
Not all Democrats are against natural gas and pipelines. The Reverend Jesse Jackson is pushing the local utility, Nicor, to build a pipeline to bring natural gas to impoverished Pembroke Township in Kankakee County Illinois. The Chicago Tribune reports that no pipeline serves the township and its 2,100 residents, forcing them to rely on propane, wood-burning stoves and electrical space heaters. Compared with natural gas, those are expensive and occasionally dangerous ways to try to keep warm, and longtime resident Thomas Levi wonder why the deprivation still continues. I applaud Reverend Jackson and hope the residents of Pembroke Township get their pipeline soon. The story should be a larger warning to cities and states that look to ban natural gas. It’s safe, cheap, relatively clean and it saves and improves the lives of human beings.
Bloomberg reports that shares of Aramco fell, losing ground for the first time since the oil giant’s record initial public offering last week, and ahead of the stock’s inclusion into the MSCI Emerging Markets Index. Shares were down 0.4% at 37.85 riyals at 13:47 p.m. in Riyadh. It is still up 18% from the initial public offering price of 32 riyals.
Trade strategy may be key to ride out the crazy moves that will come with the headlines so keep in touch with our daily analysis. We had a great response to our Money Show in San Francisco! Watch for our Videos! Thanks to all. Makes sure you are getting my Daily Trade Levels! Read Phil’s energy report at Price Futures Group. Twitter: @energyphilflynn | Facebook: Phil Flynn
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