That Demand Thing

While bearish oil traders kept their focus on the supply side of oil, many forgot to focus on the demand side and it is the demand side that propelled oil back to a three-week high yesterday. That put oil back to the highest level since the big stock market correction drop. The catalyst was an unseasonal 1.16 million barrel drop in crude supply and continued to rip-roaring demand.

Gasoline demand increased by 222k barrels last week and has averaged 9.1 million barrels a day, which is up 5.4% from year-ago levels. That is a sign that consumers are feeling strong and are out driving and spending money.

Overall total oil products demand is averaging a very healthy 20.6 million barrels per day, up by 4.3% from the same period last year. Distillate demand has averaged 4.1 million barrels per day over the last four weeks, up by 4.3% from the same period last year. Jet fuel demand is also surging and is up a whopping 6.7%, compared to the same four -week period a year ago.

That strong demand helped draw down distillate inventories by 2.422 million barrels and led to a smaller than anticipated 261,000 barrels. The bottom line is that consistent strong demand has been the story on oil. Yes, OPEC cuts helped balance the market as we predicted would happen, but it would not have made a difference if the global demand story was strong.

Now you can talk about shale and it was impressive holding at a reported 10,270 million barrels a day, yet it is not helping U.S. supply. Because of strong demand and backwardation in the market, supply is being put into the market and not into storage.

Plus shale producers are still not making money in many cases. Reuters reports in a must-read that “Shale producers have raised and spent billions of dollars to produce more oil and gas, ending decades of declining output and redrawing the global energy trade map. But, most U.S. shale producers have failed for years to turn a profit with the increased output, frustrating their financial backers.”