Noon: Optimism for the oil industry

Marita Noon
On Twitter @EnergyRabbit
Marita Noon

Low prices at the pump have been a boon to consumers but the plunge in oil prices has been a bust for American producers.

While you may not care about “big oil,” there’s still reason to be positive about the rising prices.

The causes for uptick include the weaker U.S. dollar. As oil is traded in dollars, a weaker dollar means that it takes more of them to buy the same amount of oil.

Additionally, we are heading into a busy summer driving season and refineries are switching to the more expensive “summer blend.” The switch typically means a brief shut down for maintenance — which reduces the gasoline supply.

Globally, oil production has been down due to a workers’ strike in Kuwait and disruptions in Iraq, Nigeria, Venezuela, and the North Sea — taking roughly 3 million barrels a day offline. In the U.S., oil production has fallen below 9 million barrels a day compared to 9.7 million a year ago.

These are supply issues that can easily be eradicated with increased production — which has many predicting a fall in price from current levels.

Consumers like lower prices, but they signal economic concerns as the price of oil is directly connected to the global economy.

In February, a Citibank strategist warned that due to the extended oil price collapse, the global economy “appears to be trapped in a death spiral.” Eric Sharpe, Publisher at Energy Ink Magazine, states: “Citi’s assessment is clear, and easy to understand: weak global growth results in continued depressed oil prices as demand weakens under over-supply.”

A careful read of the forecasts indicates an increase demand. Sharpe points out: “The single most important factor for the stabilization of oil prices is for demand to outpace growth which it has not done for over two years. Though demand growth is slow, it is still climbing.”

On April 27, in a story about the price of oil hitting “another 2016 high,” the Wall Street Journal addressed the fact that the Federal Reserve officials “left interest rates unchanged.” The last time the same decision was made, the statement included language that indicated the global economic and financial conditions posed risks to their outlook. This time, that was removed — “signaling less concern about risks posed to the U.S. Economy by global financial conditions.”

Additionally, Phil Flynn, Sr. Market Analyst at the PRICE Futures Group, says: “Demand is busting out all over.” He explains: “Low gas prices are causing a buying frenzy at the pump as gasoline demand in the month of March hit an all-time record high.” He continues: “it’s not just gasoline demand, it is oil demand all over. Not just here in the United States but also in China. China reported that crude-oil imports in March were up a whopping 21.6 percent from last year coming in close to 7.7 million barrels a day. ...China’s demand for imported oil is stronger than it has ever been.” He also sees increasing Indian demand.

“The market is coming in better balance,” Jason Gammel, an analyst at Jefferies, stated, according to the Wall Street Journal. “We maintain the view that the current oversupply will flip into an undersupply in the second half of the year.”

While this is good news for the oil industry, it is also good for everyone — even though it means higher prices at the pump. If this optimistic view is correct, it means the global economy may be heading toward a net positive; that it is not “trapped in a death spiral.”

A growing economy needs energy and that is why higher demand — that equals higher prices — is good for everyone.

The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great Inc., and the companion educational organization, the Citizens’ Alliance for Responsible Energy. She hosts a weekly radio program: America’s Voice for Energy—which expands on the content of her weekly column.