Strong Oil And Gasoline Demand Reflecting Strong Economy Jan. 12, 2018 5:38 PM ET 8 comments | Includes: BNO, DBO, DNO, DTO, OIL, OILK, OILX, OLEM, OLO, SCO, SZO, UCO, USL, USO, XLE
Jason Tillberg Value, Home Economics, macro, long/short equity
(783 followers)
Summary US oil demand is on the up! Up 5.6% from year ago. This is the highest increase over the past 12 years. Strong oil demand reflects the strong US economy. This could very well be part of the underlying strength in oil prices and oilrelated stocks. One metric I like to watch to gauge the strength of the economy is the demand for oil. We need oil to run our cars and trucks, fuel our airplane flights, heat our homes and help make countless products for our economy. Data from the U.S. Energy and Information Agency, known simply as EIA,shows that demand for oil in the US is on the up. First chart shows the four-week average aggregate oil supplied for the US economy the first week of January:
[Type here] FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE. OPTIONS, CASH AND FUTURES MARKETS ARE SEPARATE AND DISTINCT AND DO NOT NECESSARILY RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES & OPTIONS CONTRACT BEING OFFERED. SEASONAL DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED IN THE PRICE OF THE UNDERLYING FUTURES.
The percent change in these years shows that the increase so far in 2018 over 2017 is the highest over these past 12 years:
This is very telling as it shows the US economy is showing the strongest oil demand over this time of year in the past 12 years. [Type here] FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE. OPTIONS, CASH AND FUTURES MARKETS ARE SEPARATE AND DISTINCT AND DO NOT NECESSARILY RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES & OPTIONS CONTRACT BEING OFFERED. SEASONAL DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED IN THE PRICE OF THE UNDERLYING FUTURES.
I created this one-year chart showing the year-over-year percent change from last year of total barrels of oil supplied:
Note: Aggregate oil supplied is based on 4-week average Aggregate oil demand is up 5.6% from a year ago. Some of this increase is attributed to an increase in gasoline demand which is up 4.05% from last year. This chart shows finished gasoline demand:
[Type here] FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE. OPTIONS, CASH AND FUTURES MARKETS ARE SEPARATE AND DISTINCT AND DO NOT NECESSARILY RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES & OPTIONS CONTRACT BEING OFFERED. SEASONAL DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED IN THE PRICE OF THE UNDERLYING FUTURES.
Strong Economy One of the key themes I continue to present is that I'm very bullish on the US economy for 2018 because of the efforts made by the Trump Administration and my belief in the American people to make it happen. Oil prices have been rising of late.
Back in June of 2017, WTI crude prices were $42.53 and have been rising since. Even in the face of higher oil prices, the US economy is consuming more oil. Oil prices are up about 15% from a year ago. This has helped shares of oil-related companies as per the one-year chart below of the Energy Select Sector ETF (XLE):
[Type here] FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE. OPTIONS, CASH AND FUTURES MARKETS ARE SEPARATE AND DISTINCT AND DO NOT NECESSARILY RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES & OPTIONS CONTRACT BEING OFFERED. SEASONAL DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED IN THE PRICE OF THE UNDERLYING FUTURES.
Just The Beginning? An estimated 90% of Americans' paychecks are about to get bigger beginning next month, according to Treasury Secretary Mnuchin. Small business optimism is near record-highs:
[Type here] FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE. OPTIONS, CASH AND FUTURES MARKETS ARE SEPARATE AND DISTINCT AND DO NOT NECESSARILY RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES & OPTIONS CONTRACT BEING OFFERED. SEASONAL DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED IN THE PRICE OF THE UNDERLYING FUTURES.
Conclusion The strong US oil demand is reflective of our strong economy. This could well be just the beginning as: 1. A more favorable regulatory environment is going to boost productivity. See: Cutting Regulations To Boost GDP More Than Most Think 2. Bigger paychecks will boost demand for goods and services. This hasn't even happened yet. 3. Higher oil prices also could prove to add to inflationary pressures on top of the likelihood that faster credit creation could also prove inflationary. See: How US Debt Growth Could Take Inflation To 3% In 2018 4. Strong oil demand may well continue to provide underlying strength in the stock markets and the oil sector stocks as well. 5. Any sign of a slowdown in oil supplied would be a tell that growth could be slowing and that's something worth keeping an eye on. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
[Type here] FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE. OPTIONS, CASH AND FUTURES MARKETS ARE SEPARATE AND DISTINCT AND DO NOT NECESSARILY RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES & OPTIONS CONTRACT BEING OFFERED. SEASONAL DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED IN THE PRICE OF THE UNDERLYING FUTURES.