Crude oil bears may have seen their shadows signaling at least six more months of a bull oil market. Or is it six years? Even with reports of U.S. oil production driving more than 10 million barrels of oil a day, the decline in global oil stockpile continues to support the market. OPEC compliance to its production cuts are at a whopping 129% even as their production rose slightly.
This compliance shows great restraint by producers that in other times may have been tempted to cheat or at least look to pick up for plunging production in the collapsing socialist state Venezuela. Even with shales best efforts to increase output, the realities are settling in with oil bears that they cannot match OPEC cuts barrel for barrel, nor can they keep up with surging global demand.
Global oil demand is blowing away expectations as we had predicted. According to the EIA, global oil demand increased to 98.38 million barrels a day in 2017 up from around 92 million barrels of oil a day in 2015. There was higher consumption from the United States and China and Europe and we feel that we will add another two million barrels of oil consumption in 2018.
The ongoing impact of the Trump tax cuts will increase demand globally. The historic jump in stock prices after President Trump's election in anticipation of less regulation on small businesses caused a rally that is still making oil look cheap on a historical basis.
Even Goldman Sachs is seeing what the Energy Report has been writing for months and that is that the global oil market is in a deficit situation. Goldman says that the global oil market was in a 1.1 million barrel a day deficit in the fourth quarter of 2017.
That caused oil stocks, the major Organization for Economic Co-operation and Development (OECD) in-country stocks, to fall by a massive 105 million barrels. That puts December stocks only 0.7% above the average with above average demand. Inventory data for the United States, Japan, European ports and Singapore point to even further declines in inventories, currently 1% below their five-year average.
In other words, we have no oil glut! We have the tightest oil market we have had in years. Don’t blame bubbles or speculators or even oil companies. It is just good old fashion supply and demand. Jobs day and the impact on the dollar will impact crude. The weaker dollar makes oil cheaper in Euro terms and that will help support a booming U.S. oil export market!
Reuter’s is reporting “Surging shale oil production in Texas and North Dakota is being felt on trading desks in Chicago, Houston and New York, where a brisk business in West Texas Intermediate crude futures is far outpacing contracts for London-based Brent crude. As the United States approaches a record 10.04 million barrels of daily production, trading volumes of so-called “WTI” futures exceeded volumes of Brent crude in 2017 by the largest margin in at least seven years. A decade ago, falling domestic production and a U.S. ban on exports meant that WTI served mostly as a proxy for U.S. inventory levels.“There was a time when the U.S. was disconnected from the global market,” said Greg Sharenow, portfolio manager at PIMCO, who co-manages more than $15 billion in commodity assets.
Two changes drove the resurgence of the U.S. benchmark. One was the boom in shale production, which spawned a multitude of small producers that sought to hedge profits by trading futures contracts. Then two years ago, the United States ended its 40-year ban on crude exports, making WTI more useful to global traders and shippers.