A Shocking Oil Report From The U.S…

Dear Resource Hunter,

This morning at 10:30am the U.S. Energy Information Administration released a shocker in their weekly petroleum report.

“U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 6.5 million barrels from the previous week” the report stated.

This was in stark contrast to analyst predictions. “Supplies were forecast to shrink 1 million barrels” Bloomberg reports.

Add it all up and inventories dropped by a multiple of six to what analysts predicted. That’s a big difference.  It lends us an important takeaway for crude markets, too…

Today’s inventory report gets back to what we discussed recently about “latent demand” in the energy market.

We’ve seen this latent demand spark a frenzy in natural gas prices – more power plants are running on cheap natural gas and consumers are starting to increase usage with unexpectedly lower  prices (year over year.)

How cheap much have prices dropped?

According to WYTY news in Ohio, “new supplies of natural gas have helped drive prices down by more than half in recent years.” According to an announcement from Ohio’s Columbia Gas the projected 2012-2013 budget amount was $66 per month, down from $133 in 2008!

My point is simple. In a world where we’ve been trained to expect higher prices, lower prices on our electricity bill or at the gas pump are a welcome change. Cheaper prices are also prompting more usage. And that usage or “latent demand” is creating a new floor for natural gas prices.

Getting back to the crude market, if this week’s report is any indication, this trend is already starting to impact crude inventories. Heck, prices haven’t even dropped that far from their yearly highs – but inventories are dropping way more than analysts could have imagined.

Cheap energy anyone?

This is all support to our most recent argument that, in the foreseeable future, new “tight” crude oil supplies in the U.S. aren’t going to drive the price of oil down to oblivion.

Instead look for oil to find a trading range between $75-100 (depending on what other geopolitics are affecting the price.)  This leave some meat on the bone for efficient oil producers but also creates a seemingly “cheap” price at the pump which will continue to spur more demand.

Sticking with today’s oil them, I have another write-up for you from our resident geologist Byron King.  Below, Byron breaks down some of the recent news in the oil market and gives us his insight on the latest acquisition deal from China…

A Shocking Oil Report From The U.S… was originally featured in The Daily Resource Hunter. Check out the newest Daily Resource Hunter research video “The Price of Gas Explained”.

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