The Energy Report March 25, 2019
Despite Friday’s sell-off due to an inversion in the yield curve, the oil demand numbers are telling us the exact opposite. As I pointed out in recent weeks, gasoline demand has been flourishing, with record low unemployment, rising wages and the strongest U.S. consumer in decades. This comes as we should see another drop in U.S. oil and products inventory and could face a supply squeeze in the coming weeks. The cumulative impact of sanctioned Venezuelan and Iranian oil will weigh on the U.S. economy that is not, I repeat, not in a recession. Yes, there was weak manufacturing data in Europe and uncertainty about the U.S. - China trade talks, yet the U.S. is at what one might say is full employment.
Recession fears and false flags, maybe the yield curve has more to do with the Fed reversing course on the unwinding of the balance sheet, where they have shifted from automatic pilot winddowns to being patient and cautious. The increased fears of an overseas slowdown are raising concerns that the U.S. will be the next shoe to fall, but to erase the current growth in the economy it would have to take a dramatic change in the fortunes of the economy, and to be honest, there are absolutely no signs that that is going to happen. U.S. growth, which is higher than many predicted it could be, may slow a bit but to go to negative growth, would take a major shock.
In the meantime, oil traders will have to deal with the reality that the U.S. rig count is continuing to fall, and U.S. demand is running near record highs at 9.409 million barrels a day as of March 15th. Supplies of oil and distillates are all below the five-year average and gasoline just above the five -year average with strong demand and summer blend switchovers likely to cut into that cushion. The trend of lower drilling rigs will be a precursor to the U.S. lowering U.S. oil production estimates once again. Baker Hughes reports that the U.S. rig count fell by 10 rigs, 9 oil and 1 natural gas. The number of U.S. rigs dropped for a fifth week in a row.
This comes as we are reminded that crude oil inventories are about 2% below the five-year average for this time, distillate fuel inventories 4% below the five-year average for this time of year and gasoline 2% above the five-year average. The API and EIA should show another drop-in supply across the board with Crude being down 2.5 million, gas down 3 million, and distillates down 2 with runs steady. Crude imports and export numbers will be crazier going forward as the Houston Shipping channel is closed. Bloomberg News reports that the Houston Shipping Channel won’t reopen until the U.S. Coast Guard verifies that a cloud of cancer-causing benzene has dissipated, and oily runoff from the region’s worst chemical disaster in 14 years poses no threat to vessels or their crews.