Yesterday’s U.S. Department of Energy’s Weekly Petroleum Status Report saw an impressive 6.9 million barrel draw, placing U.S. oil inventories at a level not seen since the third week of February 2015. The news means that there has been a substantial decline of some 73 million barrels, compared to this time last year, and this, despite rising domestic crude production of 9.75 million barrels a day.
What was only recently considered a serious matter of oversupply and overproduction just before the summer, when West Texas Intermediate (WTI) oil struggled to keep above the $40 a barrel mark, has suddenly become a disruptive event with oil now moving confidently and decisively to the $65 a barrel range over the next several weeks. The news supporting this bullish outlook for oil is now beginning to see not just a rebalancing of the fundamentals, but a return to speculative, financial interests in oil, something not seen since late 2014.
When one considers a colder winter, growing domestic and global demand, as well as a return to greater forecasted oil needs from China, it is easy to see why oil has found new interest and appeal. For skeptics, it’s not about to fall out of favor anytime soon either. With U.S. factory production rising for a fourth straight month in December, registering the strongest quarter since 2010 (Bloomberg), industrial activity is draining commodity surpluses at a gradual but sustained rate. With factories moving into high gear globally, it’s hardly surprising that the Bloomberg measure of industrial activity, the Bloomberg Commodities Spot Index which tracks the price of 22 raw materials like oil, steel, and palladium, has reached its highest peak since December 2015.
Increasing U.S. oil exports combined with steady growing domestic and world demand will only continue to see the rapid depletion of the overhang in crude supplies of 2015 to 2017. As a consequence, gasoline and diesel prices will naturally follow, confirming GasBuddy’s 2018 Fuel Outlook of an expensive year ahead for motorists. With average pump prices in January looking more like prices paid during the previous summer, one can only imagine the anticipated high demand season prices are likely to surprise and disappoint.