Not Very Demanding
Oil prices are giving up recent gains as weak demand fears are wiping out recent market optimism. Not only did we have weak weather demand in the U.S., weak industrial data in China and Japan is causing even more demand concerns.
Reuters is reporting that in Japan's refining sector, total oil product sales in November fell to a 46-year low. The shrinking population and warmer-than-normal weather dented demand for all of the main product grades despite lower crude oil prices. That of course is a concern when we are looking to low prices to spark demand to soak up extra supply.
China’s stock market also weighed heavily on prices as it dropped 2 percent on Monday, their biggest loss in a month following a weak close on Friday. The culprit was weak industrial profit data and a looming revamp of how companies will be listed that weighed on the market.
Oil may also be seeing some pressure from the fact that the Iraqi army has taken back the city of Ramadi from ISIS forces. It came with the help of a coalition with U.S. forces with the promise that the coalition will take back other ISIS strongholds.
The crude oil market is also seeing pressure due to talk of Iranian oil coming back on line. Oil Minister Bijan Namdar Zanganeh is claiming that they plan export 500,000 barrels a day within a week after sanctions are removed. Yet I doubt that Iran can actually deliver that amount but the market seems to be buying it.
Yet despite the weakness we are seeing, I still believe next year demand will start to respond to the lower price. Use the weakness to put on long term strategies in what may be a once in a decade opportunity to buy at a major bottom.
The good news is the national average gas price is still below $2.00 a gallon. The bad news is we are seeing a lot of layoffs in energy and Alaska may actually have to add personal income tax for the first time in 35 years. Low prices are taking its toll and that is the downside of lower prices.
Something is going to give!