Industrial Production Drops, Sending Oil & Gas Demand Down

Dennis M. — Thu, 16 Oct 2008 17:54:26 +0000

US industrial production fell in September by the largest monthly amount since 1974. While a big chunk of the production loss was lower oil and gas production, the rest of the drop lowered demand for energy from oil and gas. The weekly EIA oil report showed continued decreases in petroleum consumption, allowing supplies to rise further toward average levels. Demand increased slightly from last week’s extremely low levels, but remains significantly lower than a year ago. As a result, crude has fallen below the $70 level, what I consider to be a long-term floor due to the marginal cost of producing new oil above $70. And US pump prices for gasoline appear poised to fall below $3 per gallon since supplies have recovered to average days of supply levels.

In an effort to curb the dramatic fall in oil prices, OPEC decided to move up its emergency meeting from mid-November to October 24th when they will probably announce a cut in production. JPMorgan Chase & Co. just released a report forecasting that OPEC will cut production again in 2009 because global oil demand will fall next year, a potential I discussed in yesterday’s blog.

Natural gas storage grew a healthy amount last week even though prices are below $7, the approximate marginal cost for many new shale producers. This cleaner of the fossil fuels appears ready to provide new energy needs along with wind in the years ahead.

The interesting energy times continue…

SET Energy » oil supplies

Industrial Production Drops, Sending Oil & Gas Demand Down