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What the Stats Say About Oil Demand (Hint-Bullish)

Surprise!  Global Oil Demand Is Surging…..

While most of the oil market coverage has been focused on the glut of supply what has been missed is that an equally big story has emerged on the demand side of the equation.

Global oil demand is surging in response to the drop in oil prices and none of the major forecasting agencies have adjusted their projections to reflect it.

For investors, that is creating an opportunity.

The media has a job to do, that job is keep your attention.   These days they are doing their job by selling you on all of the negatives impacting the prices of oil.

Ignored has been the recent global demand response which could lead to a much swifter turn in oil prices than the market expects.
The information that I provide my subscribers is not focused on what the media is saying.   My service ignores the mainstream noise and focuses on what my vast contact network and hard data tell me.

Let’s look at what the mainstream media is ignoring:

United States – A Rapid Response By Drivers

The United States isn’t just the biggest consumer of oil on the planet.  It is the biggest consumer of oil by a country mile.
Just as U.S. oil supply was believed to be in a permanent decline prior to horizontal shale production emerging so too was U.S. oil demand.
Since the Great Recession of 2008/2009 American oil consumption had been in a steady downtrend.    The oil price collapse has reinvigorated the American desire to hit the road and purchase gas guzzlers.

Based on the statistics provided by the EIA we can see that American oil consumption is up 3.83% year on year since December 1st.

000s 000s
Actual Actual Total %
This Year Last Year Increase Increase
Dec Week 1 19,454 18,554 900 4.85%
Dec Week 2 20,465 20,996 -531 -2.53%
Dec Week 3 21,037 20,484 553 2.70%
Dec Week 4 19,939 19,004 935 4.92%
Jan Week 1 19,344 18,222 1,122 6.16%
Jan Week 2 19,224 18,858 366 1.94%
Jan Week 3 20,204 19,886 318 1.60%
Jan Week 4 20,508 20,047 461 2.30%
Jan Week 5 18,635 19,110 -475 -2.49%
Feb Week 1 19,655 18,541 1,114 6.01%
Feb Week 2 20,387 18,709 1,678 8.97%
Feb Week 3 19,776 18,283 1,493 8.17%
Feb Week 4 19,654 18,291 1,363 7.45%
Mar Week 1 18,609 19,027 -418 -2.20%
Mar Week 2 19,518 18,783 735 3.91%
Mar Week 3 18,700 18,257 443 2.43%
Mar Week 4 19,475 18,199 1,276 7.01%
Since Dec 1 19,681 19,015 667 3.51%
Since Jan 1 19,515 18,786 729 3.88%
Since Feb 1 19,472 18,833 696 3.70%
Since Mar 1 19,076 18,846 721 3.83%

Source of data: EIA U.S. weekly product supplied report

A 3.8% change in consumption may not sound like a lot, but when you are a country that consumes 19 million barrels of oil per day it has a big impact on global supply and demand fundamentals.

On its own, the United States is consuming an additional 721,000 barrels of oil per day since the start of December 2014 relative to the prior year.  Keep in mind that when the price of oil collapsed it was believed that the supply and demand imbalance was roughly 1.5 million barrels per day.

Also keep in mind that all of the forecasting agencies are calling for virtually no growth in U.S. oil demand in 2015.

China – An Opportunistic Response By Leaders

China is the world’s second largest consumer of oil, but because it has a lower level of production it runs neck and neck with the U.S. for the title of biggest oil importer.

That is a vulnerable position to be in and China is well aware of it.  That is why we see them crank up their purchases of oil when the price is low so that they can fill their Strategic Petroleum Reserves.

In December in response to the oil price route Chinese oil imports hit an all-time high of 7.15 million barrels per day.   That was nearly a one million barrel per day increase over the 6.2 million barrel per day average for the prior 11 months.
That is a lot of additional oil being taken off the market.

The most recent data available from the General Administration of Chinese Customs from February 2015 still showed a 10.8% year on year increase in oil imports.

The American oil demand increase is driven by end consumers driving more as a result of low prices.  Chinese demand is bolstered by both consumers and the opportunistic filling of the Strategic Petroleum Reserve.

India – An Even Bigger Response On A Percentage Basis

The 3.8% increase in American oil demand is a big deal because it is on a big base of consumption.  The Indian demand response is on a smaller production base (just over 3 million barrels per day), but it is equally impressive because January gasoline demand skyrocketed by 18%.

February oil demand from India was also impressive hitting an all-time high of 3.91 million barrels per day which was a 9.4% increase from the prior year.  That means more than 400,000 barrels of incremental oil demand coming from India alone year on year.

That is what is happening in those three big countries.  There has also been a demand response in South Korea, Brazil, Indonesia and every other country where gasoline prices are down.

This is a global response.  Energy Aspects, a specialty oil market research firm reported December year on year oil demand had increased by 2.2 million barrels per day year on year.  And that was with considerably higher oil prices than we have had through the first three months of 2015.

Putting It All Together – The Market Isn’t Pricing This In

draft pic

Source of image: IEA March 2015 oil market report

The expectations of the market are set by the three major forecasting agencies (IEA, EIA and OPEC).   These agencies are seemingly blind to the surge in oil demand that has already happened.

The table above is what the IEA released mid-way through March 2015.

For 2015 the IEA is still forecasting global oil demand growth of just 1.0 million barrels per day.  In other words, the IEA is saying that demand growth this year will come in roughly in line with the prior two years when oil prices globally were over $100 per barrel most of the time.

That doesn’t make any sense.  How can it be business as usual for oil demand in 2015 with prices cut in half?
A 1.0 million barrel a day demand increase in 2015 seems highly unlikely when you consider that American oil demand alone has already increased by 700,000 barrels per day year on year.

And remember, the United States is a country where oil demand is expected to be flat if not declining.

After a few months of posted data, the market is going to start to realize that there are two sides to the oil price equation.  There is supply (which caused the collapse) and there is demand.  When the market’s attention finally locks on to the fact that demand is vastly outpacing expectations it will move both the price of oil and the stock price of oil producers.

The tricky part in this market is picking the timing of the move.  You don’t want to be caught owning oil producers that can’t outlast a long period of low oil prices.

That is why rather than trying to exactly time the move, the best strategy is to own the highest quality junior oil producers in the industry.  Low oil prices have actually been good for these low debt producers who are right now getting looks at once in a generation acquisition opportunities.

On the other side of an oil industry blow-out the strong companies emerge stronger.
I’ve identified the three best in class junior oil producers.  All of these companies exhibit the same characteristics:

  • Low debt
  • High quality proven management
  • Top quality, fast payback oil plays

I’m offering a free chance to take a look at this report.  I’ve studied this industry relentlessly for 6 years and I can tell you that these three companies are the cream of the crop.  Even their competitors say so.

 

Keith Schaefer

 



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