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Raymond James Energy Stat of the Week
by J. Marshall Adkins

Energy Stat: Despite Recent Oil Price Meltdown, Oil Fundamentals (Especially Demand) Remain Robust
November 26, 2018

Two weeks ago, we discussed how several bearish factors have recently converged upon the oil markets to drive a sharp downward correction in oil prices. While the main fundamental instigator of this deteriorating oil market sentiment was clearly the Trump administration granting sanction waivers to several importers of Iranian crude, the extreme oil price meltdown over the past two weeks has been more of a technical breakdown that has evolved into a full-blown ''algorithm-fueled'' selling stampede. Despite the recent meltdown in the ''charts'', our job is to focus on industry fundamentals, and we think these fundamentals continue to look VERY bullish over the next few years.

Going further, market concerns over slowing global oil demand growth are simply not supported by recent data. Specifically, the recent global stock market correction combined with fears around the strengthening U.S. dollar, and rising trade tensions have raised investor fears that global oil demand growth is poised to deteriorate sharply next year. While we are certainly concerned about the potential impact from a rising U.S. dollar, all of the most recently available oil demand data suggests that global oil demand growth remains exceptionally robust in the face of higher oil prices this year. Furthermore, we have long held that limited global oil supplies in 2020 (and beyond), will force global oil prices high enough to meaningfully slow global oil demand growth in the out-years. This price elasticity over time is depicted in the adjacent graph. In today's ''Stat'', we will examine the shifting forces behind global oil demand including: (1) How will rising oil prices impact global demand?; (2) How will a rising U.S. dollar impact demand?; (3) Which regions will future oil demand growth come from?; and (4) Which oil products are driving this demand growth?

This is a summary of a much more detailed commentary. Please contact your financial advisor for the full report.

There is no assurance any of the trends mentioned will continue in the future. Past performance is not indicative of future results. Investing involves risk and investors may incur a profit or a loss. Specific sector investing can be subject to different and greater risks than more diversified investments. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The S&P 500 is an unmanaged index of 500 widely held stocks. The Oil Services Index (OSX) comprises 15 of the largest oil service companies. The S&P SuperComposite Oil and Gas Exploration & Production Index (S&P Oil and Gas E&P) consists of all oil and gas exploration and production stocks included in the S&P SuperComposite 1500 Index. Investors cannot invest directly in an index. Additional information is available upon request.

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