The Pullback. The Energy Report 04/08/2024

Oil is back after Israel pulled back some troops in Gaza and because Iran failed to follow through on threats to respond to Israel’s attack on its consulate in Lebanon. Yet to say the market is on edge is an understatement as supply tightness is clear as we continue to see ongoing threats to supply. Move Israel in oil prices are seeking to regroup it’s the market waits to see if there are any other shoes to drop.

There is also a lot of speculation in the market that the Energy Information Administration has been overestimating US oil production by almost 1 million barrels per day. As we know the Energy Information Administration has consistently had to adjust their production estimates from their weekly reports and now it’s very clear to many in the industry that the numbers that they have been reporting fall short. HFI Research points out that the EIA admitted that they didn’t survey oil production but used a model to come up with their equation the model has had run of overestimating production.

This overestimating production means that the supply situation based on current demand is much tighter than we had originally thought. If you look at the demand numbers from last week in the United States, they say hit an incredibly high 21,292 million barrels a day. So if the pattern of overestimating production continues and underestimating demand we could be in a very interesting situation.

So with the reduction of geopolitical risk, we’re back to focus on supply and demand which still looks exceedingly tight this week we expect to see crude oil supplies fall by 3,000,000 barrels. We also expect to see the same in products with a 3 million barrel drop in both gasoline and distillates refinery run should see an uptick of 0.5.

B technical pullback is happening because crude is overbought and because of the reduction of geopolitical risk in this type of situation is going to be important to see whether or not the market consolidates where we see some further downside are expectation is that we will consolidate at some point because the supply versus demand situation is too tight to ignore and it’s too dangerous to allow prices to fall because we’re going to need to squeeze out as much production as we can to meet demand.

Based on what we’re seeing in industrial metals and gold the markets as expected to see some industrial demand big strength in both aluminum and copper is giving the market some support in this one of the reasons why oil isn’t falling out of bed despite being very overbought.

Javier Blass at Bloomberg pointed out that Vitol, the world’s largest independent oil trading company, has made more money in the last 3 years than during the past 30 years combined.

Gasoline prices are still above year-ago levels. AAA reports that The National Average was $3.598 slightly above yesterday and a year ago and about 5.7 cents a gallon a week ago.

You don’t have to go to Nova Scotia to see the total eclipse of the Sun but it might be a day that is not good for solar panels, sort of like when it hails or snows. The EIA reports that On April 8, 2024, a full solar eclipse will briefly but fully obscure sunlight to utility-scale solar generation facilities from Texas through Maine with a combined 6.5 gigawatts (GW) of capacity. In addition, the eclipse will partially block sunlight to facilities with a combined 84.8 GW of capacity in an even larger swath of the United States around peak solar generating time.

Solar-powered generators centered in the path of totality—where the moon will completely obscure the sun—will be affected the most because the moon will block all direct sunlight for more than four minutes. The partial eclipse could limit the sunlight in the path of totality for more than two hours. Areas around the path of totality will have varying levels of diminished solar generation during the eclipse. Because we know about the eclipse ahead of time, utilities have prepared and planned for the lost solar energy. Several grid authorities have released plans for how they plan to deal with the change in solar generation during the eclipse according to EIA.  So, we have that going for us.

Natural gas rigs have fallen to the lowest level since January. Production of natural gas is starting to fall. Power burns for natural gas have been exceedingly high as low prices have encouraged demand we’re expecting to see an increase in supplies of about 15 BCF this week in the weekly report and it feels like the market is trying to put in the bottom. Still, the fundamentals in the glut is real so it’s probably best to be hedged with options.

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