Crude: more demand and less supply

While Florida and the rest of the Gulf Coast deal with the aftermath of Hurricane Harvey and Irma and the energy markets assess the short-term demand destruction, in the bigger picture for energy, we are getting very bullish data in supply versus demand. All major reporting agencies, Organization of the Petroleum Exporting Countries (OPEC), The Energy Information Agency(EIA) and the International Energy Agency (IEA) are reporting that we are seeing more demand and supply, which should set the stage for an end of year rally especially when we go full-scale recovery phase in the storm impacted areas.

The IEA was the latest to give oil a boost as I predicted it would, raised its global oil demand forecast. The IEA raised its global oil demand forecast by very strong 1.6 million barrels a day while admitting that OPEC compliance to production cuts have improved. As I have written before, the IEA is notorious for underestimating demand and had to once again raise their forecast. I think that they are still underestimating global demand and will have to raise it again even though 1.6 million barrels a day increase is extremely large year over year growth by historical standards. The IEA said that oil demand increased by 2.3 million barrels per day, or 2.4 %, in the second quarter of 2017 In 2018. The IEA is predicting growth of 1.4 million barrels per day or 1.4 %, which we also think is low.

The Energy Information Administration also once again lowered the forecast for U.S. oil production as shale oil producers have pulled back and are having a tough time overcoming the steep shale oil decline rate. The EIA lowered their 2017 production estimate to 9.25 million barrels a day from 9.35 million barrels a day in 2017. It also lowered its forecast for 2018 to 9.84 million barrels a day down from 9.91 million barrels a day and down from a previous forecast that was over 10 million barrels a day. The EIA also raised their U.S. oil demand forecast to 20.38 million barrels a day up from 20.3 million barrels. This comes as all reporting agencies saw an improvement in OPEC compliance, even OPEC themselves.

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