Thursday – Oil Failure Drags Down The Markets

Well that was kind of obvious.

As I noted for Reuters yesterday morning: “OPEC has unrealistic expectation as to what their production cuts can achieve, U.S. production over the next two years is expected to wipe out much of the OPEC cuts.”  Yesterday afternoon, despite the 5% sell-off in oil during the day, I told our Members to expect another 2.5% drop this morning and we hit our $48.75 target on the nose just after 6am on the /CL Futures:

This morning we decided Gasoline (/RB) has suffered enough at $1.62 though it may still go 1.25% lower ($1.60) before really turning up so our plan is to double down at $1.60 to average $1.61 into the weekend.  

Oil I’m less enthusiastic about going long on – there are massive long positions in oil that may have to unwind as more and more people are realizing OPEC’s cuts were too little and too late to salvage 2017.

Not only is the US simply bursting with excess oil in our inventories but, in an attempt to get rid of it (and fake demand), our manipulator friends have taken advantage of deregulation to EXPORT 500,000 barrels of oil per day (3.5Mb/week) more than they did last year.  Isn’t that insane?  We IMPORT 7Mbd but then export 1Mbd (total) or oil and another 1.8Mb/d of refined products.  That means the US is exporting 19.6Mb/week of oil, which is a full day of “use”.  

So, the fact of the matter is that the US does not consumer 19Mb/d of oil, we consume 14% less or 16.3Mb/d and that is why almost every single consumption statistic you see is wrong and that is OPEC and the Oil Industry’s dirty little secret – actual demand for oil is far lower than they lead you to believe and it’s heading lower every year as our cars and trucks and planes get more efficient.   

2016 was a terrible year for Gasoline demand but 2017 is starting out 6% WORSE already. Why is that?  Well despite the low demand, all the market manipulation has driven the price of oil from $35.91 last March to $49.50 at the moment (up 38%) for no reason at all and gasoline prices are up from $1.84 to $2.34 (27%) which encourages people to buy even more fuel-efficient cars, which further lowers demand – even if people drive more miles.