The Energy Report | Don’t Forget About Demand

Posted on 01/23/2018 3:16 PM


Oil prices are consolidating as the global economic forecasts are driving demand expectations higher and U.S. oil inventories continue to plunge. After a record one week drop in supply last week, at Cushing Oklahoma, the market is getting ready for yet another steep drop at that point. This comes as the International Monetary Fund (IMF), in its World Economic Outlook released yesterday, is saying that U.S. tax cuts will ramp up investment not only in the U.S. but among its trading partners.

The IMF upped its global forecast upward, to 3.9 percent for both 2018 and 2019, a 0.2 percent improvement from its October prediction. That Increase should put global demand growth for oil close to 1.8 million barrels of oil a day with a possibility of adding 2 million barrels of oil a day of new demand in 2019. While the IMF warns there could be some headwinds, the truth is that the forecast is very bullish for oil.

It also means that the commitment by Saudi Arabia and Russia to keep cuts in play to the end of the year and perhaps into 2019 will succeed in draining global oil supply and driving prices higher. As I told Barron’s earlier this month, If OPEC and Non-OPEC keep the cuts in place that oil has a chance to go back to $80, assuming no ‘black swan” events.

Speaking of black swan events, a major 7.9 earthquake, depending on what report you read, struck off the cost of Alaska causing Tsunami warnings. The New York Times reports that the tsunami center said the first place likely to be hit would be Kodiak, Alaska at 1:45 a.m. local time, followed by several coastal towns over the following two hours. A tsunami could hit Tofino, British Columbia, on Vancouver. The Globe reports America’s West Coast faces an “extraordinary threat to life” from 32ft tsunami waves following what they say is a massive 8.2-magnitude earthquake. Oil traders will await to see what the impact may be either on production or demand. Keep folks in harms way in your prayers. It is too early to tell how bad it will be.

Oil is in a consolidation phase and that is a good sign for oil bulls. Bears that have been counting on hedge funds to dump positions at any minute are being disappointed. It’s about demand at tightening supply. The seeming indifference to historic cutbacks in energy projects and an over reliance on shale to fill the void is leaving the market structurally undersupplied in the coming years. As we wrote when oil was at $26 a barrel that oil was at the end of a bust cycle and that we would look back in a few years and realize just how cheap that oil was.

Natural gas is showing some life as it gets prepared for a supply drawdown that is going to be much larger than the five year average somewhere with a draw around – 277 bcf. With supply 12% below the five-year average we need to keep production near these record highs. The market is fearful that the cold slowed output.

We know the cold down south slowed production of heating oil and gasoline as refiners went into circulation mode to ride out the cold. We will see if it impacted product supply in tonight’s American Petroleum Institute (API) report.

Tune into the Fox Business Network (FBN), the best in business! The MoneyShow Orlando is getting booked and from what I am hearing the rooms at the Omni are all booked up. If you are going to try to still come, there is a Hampton Inn hotel down the street that one of my readers are recommending. Make sure you secure a space for my masterclass before it sells out. I am hearing from a lot of you and I am looking forward to meeting you. Find out why most analysts missed the historic turning point for oil and why it matters for the economy. We try to tell it like it is, even if it is not what you are hearing from the throngs. Go to Were you hedged enough this year? Did you catch the long side of oil?

Call me at 888-264-5665 or email me Get my daily trade levels for all major markets. Also call me to get signed up for John Kemps reports.


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