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Demand economics alone might not halt oil’s rise

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As summer demand for gasoline nears its end, the latter part of summer 2017 may break a new all-time record, this is the time refineries traditionally wind down production to make way for winter blends of gasoline. But this year may be different though, driven in large part to supply considerations.

What could be a scenario playing out that’s supporting oil at $50 a barrel may be a confluence of factors that are quite separate from demand itself, but might nevertheless provide ongoing support for oil prices and, as a consequence, pump prices.

The first is that the U.S. economy is picking up steam in both job numbers and confidence indexes. In and of itself, these emerging realities are bullish on oil demand but considering recent reports of investors shifting from the equities markets (stock markets) back into commodities, the move can’t be seen as merely coincidental. Secondly, geopolitical event of late over North Korea’s nuclear sabre rattling and the growing crisis in Venezuela are just two elements that add a sense of heightened risk to global stability and practically, involve some escalation of fuel demand as the U.S. military is the largest institutional consumer in the world at over 100 million barrels of oil per year.

A third consideration that bodes well for oil is the determination by the U.S. Energy Information Agency’s (EIA) Short Term Energy Outlook (STEO) which warned that “U.S. oil production could slow as some energy companies plan less investment spending for the rest of this year and the number of drilling rigs has recently increased at a slower clip”. Consequently, EIA believes onshore oil product will be less robust in the latter half of 2017, compared to the torrid pace of the first six months. Even without OPEC and its ongoing struggle to rein in oil over-production among its cheating members.

Of course, as weather too can play a role in oil’s fate, according to the National Hurricane Centre, 19 storms can be expected over the next few months up to the end of November. That’s an increase of two potential storms from their earlier prediction of seventeen back in June.

While it would be premature to see all these factors forming the basis of an unusual rise in crude’s value for this time of the year, there are nevertheless real signs that gas prices and other petroleum products won’t necessarily fall with the next season. Expect the unexpected.

Senior Petroleum Analyst, Canada

Dan is a skilled and noted bilingual (French and English) consumer advocate specializing in energy and current affairs. Known as Canada's “Gas Guru,” he founded tomorrowsgaspricetoday.com to better help motorists anticipate the price of gasoline in advance across Canada. He has over three decades of experience in the petroleum industry, as a parliamentarian and an analyst.

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