While it may not feel like it, crude is in the early phases of a new oil "super cycle." In fact, in the early stages of a super cycle it never feels like it but that is because we are laying the groundwork for supply tightness in the future. While we hear about an everlasting oil glut and a new era of high price. Oil prices and capital spending cuts are happening at a pace unprecedented in oil market history. Well over 200 billion dollars of oil and gas projects have been shelved.
In fact, there are so many similarities to what is happening in oil and the beginning of the last super cycle in the late 90's--the charts are earily similar. Now with Fed Chair Janet Yellen talking about raising rates making it harder for the energy space to raise capital and pay it back. Bankruptcy filings in the oil and gas sector are widely expected to increase in the coming months with U.S. production prospects drying up at the fastest pace since 1989.
While the rig count had increased for six consecutive weeks over the summer as a consequence of higher oil prices, it fell again in the past three weeks. There are now about 60% fewer rigs working since a peak of 1,609 in October last year.
Janet Yellen is giving oil the proverbial double-edged sword. While oil likes the fact that she is signaling that interest rates will rise giving a boost to confidence that the global economy is getting better. Yet, increasing interest rates in the United States could slow demand and add to the perception of an increasing oil glut. While shoulder season is in full swing we feel now is still the time to think long term in the oil space.
Of course, China's crude oil imports fell by 1 million barrels a day to 6.2 million barrels per day in August compared with June/July according to figures released by the state-controlled Xinhua News Agency. The net imports are still up by 0.3 million b/d compared with August 2014. Norway's DNB Bank said the fall pointed to the subsiding of China's large strategic stock building in the previous two months. Saudi Arabia was the largest supplier of imported crude with 15% (0.93 million barrels per day while Russia was second largest with 12% (0.74 million barrels per day) according to Dow Jones.
The Party is over! At least for now. Gasoline prices climbed for the first time in 38 days today, to $2.29 per gallon, according to. AAA. Pipeline and refining issues caused a pause in the gas price collapse.