A black cat crossed the oil bears path this morning as the market is now soundly rejecting the International Energy Agencies downbeat assessment of oil prices in 2018. Despite their pronouncement that demand growth will stagnate the evidence that projection is probably wrong is already apparent. A major drop in U.S. crude Inventories, evidence of strong demand in China, India and Europe, and the impact of the basest pullback in energy investment in history is suggesting a bottom in the oil cycle that may give oil bears 7 years of bad luck.
Lackluster demand? Not in the U.S. or China. U.S. crude inventories fell by 2.75 million barrels last week and that would have been even larger if it were not for another 1.2-million-barrel release from the U.S. Strategic Petroleum Reserve. Cushing crude was up +1,322 million.
U.S. production fell by 81,000 barrels a day more than expected and refining demand surged to 89.2% a high for this time of year. U.S .Crude Exports rose to a record of 1,148 million barrel drop in distillates putting them below average for this year. Bottom line this was a very bullish report but the market had to get over the IEA nonsense.
Chinese oil imports surged to 8.5 million barrels a day and hit 9 million barrels a day last month, the second highest on record. Chinese auto sales in the country have surged for 5 months in a row. Chinese September exports were much better than expected to rise 8.1%, and imports up 18.7%. The export number would have been larger if it were not for sanctions on North Korea. China imported an average of 100,000 barrels of crude a day from the U.S. during the first five months of 2017, 10 times the level for the same period last.
India’s demand for petrol is growing at 6% and will become Asia’s fastest-growing oil market in 2018, according to Moody’s. India is looking to use U.S. oil imports as leverage to get better prices from OPEC. China and India will continue to be the key growth engines for oil demand representing over 80% of the expected growth in 2018, according to Moody’s.
Natural gas supply is now below average going into winter and that will mean higher prices especially if we get any type of winter.