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The Energy Report August 15, 2019

Real Data

We have doom and a spattering of gloom but then we get real data. Real data that showed U.S. gasoline demand at a record high and U.S. road traffic volume that was up +1.1% in the three months Apr-Jun compared with the same period a year earlier. We get more data today that may relieve some of the “recession is just right around the corner” fears. Yes, the inverted yield curve in 2005 did signal a recession in two years. Of course, oil rallied over 140% before it actually kicked in. It may have also signaled an earthquake in India, but we can’t be sure. My point is that the trade war fear may actually be priced in and even if recession risks are elevated it may be some time before we get there. In the meantime, economic data today may bring sanity back to the marketplace or perhaps total lunacy. Meanwhile, the market recovery overnight was stalled by a report that China called planned U.S. tariffs on an additional $300 billion in Chinese goods a violation of accords reached by Presidents Donald Trump and Xi Jinping, signaling its intention to impose retaliatory measures. In other words, it seems China is doing what we expect it should do, unless of course the U.S. tariffs are delayed or if the September U.S. China trade talks bear fruit.

The Energy Information Administration (EIA) report on a normal day would have sent oil and product prices higher. Yes, the EIA did report that crude oil inventories increased by 1.6 million barrels from the previous week, but that was due in part to seasonal refinery maintenance (refineries operated at 94.8% of their operable capacity last week down from 97.1) and supply is only 3% above the five-year average for this time of year at a time when demand for oil products are at an all-time high. The EIA not only set a weekly record but overall demand on the four week moving averages set records as well.

The EIA demand based on total products supplied hit a record 21.6 million barrels per day, up by 3.7% from the same period last year. Gasoline demand hit 9.7 million barrels per day, up by 0.6% from the same period last year. Distillate fuel demand 4.0 million barrels per day over the past four weeks, up by 1.0% from the same period last year. Jet fuel product supplied was up 2.1% compared with the same four-week period last year. Far from recessionary numbers. Not only did we see U.S. traffic volume rise, we saw expenditures on gasoline rise even as gas prices went down a real sign of U.S. consumer strength.

Data from EIA’s new Key Statistics and Indicators section of the State Energy Data System (SEDS) show that nominal per capita U.S. motor gasoline expenditures (the amount of money spent to consume motor gasoline in the United States) averaged $1,072 in 2017, an 11% increase from 2016 and the first annual increase since its peak of more than $1,500 in 2012. Wyoming had the largest average motor gasoline expenditures per capita of any state in 2017 at $1,441, while New York had the smallest of any state at $708. Average expenditures in the District of Columbia were lower than all states at $395. Total U.S. motor gasoline expenditures were $348 billion in 2017, an increase of 12% from the previous year. The increase was primarily caused by an increase in the U.S. average price of motor gasoline, which more than offset a 0.2% decrease in U.S. gasoline consumption from the previous year. The U.S. price of motor gasoline in 2017 averaged $2.44 per gallon (not including local taxes), a 12% increase from 2016.

Breaking News. Reuters is reporting that the United States has applied to seize the Iranian Grace 1 tanker in Gibraltar, commandeered by British Royal Marines in the Mediterranean last month, complicating a possible tanker swap between Britain and the Islamic Republic. Stay tuned!

Bottom line, the oil market is trading on fear. Weak data overseas suggests that oil demand may slow. But actual numbers suggest that that slowing may be overstated. The inverted yield curve is a warning that things could slow more, yet it is not a perfect indicator. Part of the problem with the current curve is the fact that the U.S,. when they raised rates, was out of step with overseas rates that were coming down. In the meantime, we can count on more economic stimulus. Hong Kong’s government announced a stimulus package worth more than $2 billion and said the economy will struggle to grow at all this year amid the ongoing political unrest, according to a Bloomberg report. Bottom line: be patient. Do not panic. Look for opportunity.

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Phil Flynn
The PRICE Futures Group
Senior Market Analyst & Author of The Energy Report
Contributor to FOX Business Network

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