Oil prices got clobbered on fears of an economic slowdown and a promise by Saudi Arabia to raise production but then there is that demand thing. You remember the demand. It is the other side of the market, you know supply and then demand. Well, if you try to look at that side of the equation the economy is smoking. In fact, instead of a slowdown in the global economy in terms of energy demand, we are seeing the strongest demand we have seen at this time of year in over a decade.
The Energy Information Administration (EIA) reported, in its “Weekly Petroleum Status” report, that demand for all petroleum products averaged 20.4 million barrels, up 3.6% from the same period last year and at the highest levels since 2006. The main source of that demand was driven by distillate fuel demand that averaged 4.1 million barrels per day, that was up 7% from last year. Gasoline demand was up week over week but over the past four weeks, averaged 9.2 million barrels per day, down by 1.3% from the same period last year. Gas demand was hampered over the last four weeks by Hurricane Michael, but overall with demand, this strong at a time when it is usually soft makes the supply side that much tighter.
While the EIA did report that crude supply increased by an impressive 6.3 million barrels from the previous week, it was enhanced by a 1.2 million-barrel release from the Strategic Petroleum Reserve but it only leaves overall supply just 2% above the five-year average while demand for oil products is running much higher than that. That is not very comforting as we get closer to winter. That demand surge led to big drops in products. The EIA showed that motor gasoline inventories decreased by 4.8 million barrels last week, but still about 6% above the five-year average for this time of year.
Yet, on the distillate side is where we are still having the problem. The EIA reported that distillate fuel inventories fell by 2.3 million barrels last week leaving them about 4% below the five-year average. So, if the stock market is not right about a demand slowdown in the global economy, we are going to see an extremely tight market all winter and the possibility of price spikes and potential shortfalls somewhere in the globe.
