I’ve talked at length about how the OPEC output-cut agreement is of little importance within the global oil supply-and-demand balance. That’s because elevated U.S. oil production is lifting oil inventories to record levels.
But when I got a gander at the latest oil stats, I almost fell out of my chair…
Factor #1: Higher oil prices are bringing U.S. producers back in droves. This is evidenced by a marked increase in 2017 corporate spending and a surge in the number of U.S. oil drilling rigs.
Factor #2: 2017 oil inventory builds are running nearly three-times greater than the 10-year average rate.
Factor #3: U.S. shale oil production is surging, which the Energy Information Administration (EIA) expects to top 4.87 million barrels per day in March.
But there’s a new wrinkle not talked about in the media that’s contributing to record oil supply. And one with far graver consequences: Depressed gasoline demand.
Black Hole in Demand
Last month’s U.S. gasoline demand plunged to its weakest seasonal level in 15 years, and that points to much graver concerns hanging over the oil market.
Why? Because lousy gasoline numbers mean less demand for oil. And less demand means lower prices.
But don’t just take my word for it …
Goldman Sachs recently commented that the plunge in U.S. gasoline demand was something that only happens during a recession.
What’s worse is the latest weekly EIA inventory data shows more deterioration, with four-week average gasoline demand at 8.587 million barrels per day and down 5.2% from year-ago levels.
This is critical to U.S. oil prices, because U.S. gasoline demand represents 9% of all global oil demand and nearly half of all U.S. oil demand.
Adding even more trouble: Both U.S. oil and gasoline inventories are rising at the same time.
And there’s only one way to work off those inventories: Lower, not higher, prices.
In fact, weak gasoline demand is likely to curtail how much oil U.S. refiners purchase to make the fuel, which would take a key demand source away from the oil market.
But that’s not all.
Inventory figures suggest that refiners are already slowing production, highlighted by lower refinery-run activity and utilization rates.
And don’t forget: If the upcoming peak U.S. driving season proves to be a dud, even deeper cuts in oil prices will likely be in the cards.
Bottom line: Burdensome supplies and lackluster gasoline demand will cut short the OPEC output-cut rally … and force the bull camp to capitulate.
And my cycle work and my artificial intelligence modeling have been saying the same thing all along: The intermediate-term direction for oil is down. But the members of my services – Real Wealth Report and Supercycle Trader – know just how to play it.
Best wishes,
Larry
Chuck anselmo March 3, 2017
Great when will prices at the pump declined
TQ March 1, 2017
My thoughts are that toll roads are making up far more than the difference in gas price and as gasoline goes down people start to notice that $12 to $19 per day in tolls is way too much. Add to that, even though commercial property has gone down companies are often locked into long contracts at outrageous prices and how do you reduce cost, let groups work from home. The ones left start to ride share and take public transportation as the toll cost goes up. With the aging population and as apartment gluts get bigger people will also move closer to work as “what if labor is scares and in demand?” and in 6 months rent should be lower. A lot of people have been buying new trucks and SUV; add it up and you get cost effective ways of living to afford them. Everyone knows gas stations are in effect gauging based on the price of oil. So the reaction is due to people thinking about their options and wish to avoid more of the same, like never before, and let them see who wins, for a while .
Tim W February 27, 2017
Thank you
Hervey McGlashan February 27, 2017
I don’t know where you are, but gas prices have gone up from $2.76 a gallon to over $3.00 in the last two months here in Palm Desert, CA.
jack kimura February 27, 2017
You mentioned, in the past, to stay away from bit-coin, why?
Steve Orcutt February 26, 2017
RE: Oil’s Gasoline Demand Problem
I was wondering if you have a timeframe for the suggested drop in oil prices.
I was thinking purchasing a put in BNO would be a good play on this info, but not sure of July or Oct expiration
Jas February 25, 2017
OPEC clearly have a supplied sided problem with Brent crude oil. What’s happening to the non accelerating inflationary rate of unemployment? What’s OPEC gonna do about this? More supply side shocks.
Nobody important February 25, 2017
Larry,
The gasoline stats your using are from winter months of limited driving.
US oil producers are IDIOTS that never learn. The big ramp up of oil will only cause the price to drop and they will lose again then complain……IDIOTS!!!
The BIG question is….why is the US importing 6 million barrels of oil every day????
Stop that and we may have an oil market with profitable prices for producers and jobs.
OOOPPPPSS, sorry that would make sense and we can’t have that because LIBERALS will not like it.
Lis February 25, 2017
Thank you for this blog, Larry. :-D))
Steve February 24, 2017
Excellent insight as always Larry. I’m going to be short oil on your reco. Cheers my friend.
Sincerely,
A Real Wealth Report Subscriber
Rich Voget February 24, 2017
As electric car production increases, demand for gas will decline.
Gary S. February 24, 2017
I’ve seen this information in a couple of reports previously. IMHO the reduced gasoline usage the last several months is due to the terrible winter weather we have had here in the U.S. People are not willing to brave the elements to drive around if they don’t have to. My bet is that gasoline numbers will strengthen in the spring. That’s not to say that the price of oil is going to go up much if any, since as Larry noted, increased U.S. production (not to mention cheating by OPEC members) will probably keep a cap on it and may in fact cause a decrease in the price.
Mike February 24, 2017
Far from a problem this is great news! A reduced demand for gasoline is good in that it means:
Consumers can spend their savings on gas on other items enhancing the bulk of the economy;
Less oil is imported lowering our trade deficit;
Lower demand for oil will depress prices and contribute to this virtuous cycle.
This is a win all the way around, just think of it as a tax cut with fringe benefits!
John Marquart February 24, 2017
Larry,
Why is gold price rising but gold miners dropping? Did not see much of this last year.
Thanks, John
Jim W February 24, 2017
How much of the lower demand is accounted for higher fuel economy in autos, and, residential, commercial and industrial energy conservation through higher efficient gas and oil combustion boilers as well as higher efficient A/C systems which translate lower KW to lower fuel usage?
Le February 25, 2017
Probably a lot,I think we will remain is a very slow decline due to all new energy sources available.