Oil can't seem to find a bid even after the Energy Information Administration (EIA) reported a whopping 4.4 million barrel drop in weekly crude oil supply, much larger than expected. In what seems to be more of a mood play than reality, oil is being weighed down by negative sentiment, combined with seasonal weakness. In other words, the market is more focused on threats to demand than current strong demand. Glut is the talk on the street even though current demand trends, at least right now, would suggest that that glut is going to not get that much bigger.
So oil is moving on other issues each day, like Fed speak and the Chinese stock market and other issues. If the Fed raises rates the fear is that robust U.S. demand will fall. In China, if demand slows than oil is toast.
In the short term oil did not seem to get as much help from the gasoline market as thought for. The EIA reported that motor gasoline demand averaged 9.5 million barrels per day, up by 5.4% from the same period last year but less than last week. Distillate demand was weak averaging over 3.7 million barrels per day over the last four weeks, down by 4.1% from last year.
Still over-all demand is strong as U.S. crude oil refinery inputs averaged about 17.1 million barrels per day, 313,000 barrels per day more than the previous week's average. Refineries operated at 96.1% of their operable capacity last week. Gasoline production increased last week, averaging 10.0 million barrels per day. Distillate fuel production decreased last week, averaging over 5.0 million barrels per day according to EIA.
Yet oil is still having problems. If you forget outside fundamentals or the size of the moves oil prices really are moving in step with normal seasonal trends. In April ahead of the summer driving season oil bottomed and went straight up to the Fourth of July and sold off from that point. If that pattern continues oil should bottom the second or third week of August. But because oil fell so hard in July it is possible we are bottoming early and if we see oil close strong over a dollar higher we could see a short covering rally. But the mood thus far still is looking heavy so it may see a headline to turn us around. Its Obama's way or war! President Obama gave a snarky speech in defense of the Iranian hostage deal. Once again the President smeared his critics comparing the Republican caucus to hardline ante them to anti-sematic terrorists loving Iranians. He framed the debate as he always does as and either or false choice and claiming that he alone knows what is best and his critics are just war-mongers. So if this vote does not pass congress then put some war premium in oil.
Saudi Arabia is not watering the oil -price war that they started very well. Reuters reports that "Saudi Arabia has issued its first sovereign bonds since 2007 to cover a budget deficit created by low oil prices, launching a series of debt sales that could reshape its financial markets. The government sold 15 billion riyals ($4 billion) of bonds to local banks this year, Friday's al-Iqtisadiya daily quoted central bank chief Fahad al-Mubarak as telling reporters. The report did not reveal financial terms or say exactly when the sales occurred, or whether the local currency bonds were sharia-compliant, which would allow them to be bought by Islamic banks."
Bloomberg News reported earlier this week that the oil crash erased $1.3 trillion, the equivalent of Mexico's annual GDP, in little more than a year. They said that billionaire Carl Icahn, when crude was at its peak in June 2014, the activist investor's stake in Chesapeake Energy Corp. (NYSE:CHK). was worth almost $2 billion. Today, oil has lost more than half its value, Chesapeake is the worst performer in the Standard & Poor's 500 Index and Icahn has a paper loss of $1.3 billion. The S&P 500, by contrast, is up 6.9 percent in that time. Bloomberg says that state pension funds and insurance companies have also been hard hit. Investment advisers, who manage the mutual funds and exchange-traded products that are staples of many retirement plans, had $1.8 trillion tied to energy stocks in June 2014, according to data compiled by Bloomberg.
The California Public Employees Retirement System, a $303 billion fund that provides benefits to 1.72 million people, owned a $91.8 million slice of Pioneer Natural Resources Co. in June 2014. At the time, Pioneer was a $33 billion company and one of the biggest shale producers in Texas. Today, Pioneer is worth $19 billion and Calpers' stake has lost about $40 million in market value.
Since June 2014, the combined market capitalization of 157 energy companies, listed in the MSCI World Energy Sector Index or the Bloomberg Intelligence North America Independent Explorers & Producers Index, has lost about $1.3 trillion.
Bloomberg says that if crude rebounds, investors may make some of their money back, though values may not recover as quickly as they fell. After the tech bubble burst in 2000, erasing $7 trillion from the Nasdaq Composite Index, it took almost 15 years for the market to return to its pre-crash level. Oil, which lost more than half its value in the past year, will rise less than $20 through the first quarter of 2016, according to the median estimate compiled by Bloomberg.
Of course oil has crashed three times this year and anyone who got short at these levels lost big. Maybe the third time will be the charm, or not.