Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
Oil prices fell back yesterday as most oil traders agreed that Iran lied about their nuclear ambitions but really, they were old lies that we have already heard before. Because there was no real new information the market then focused mainly on the soaring U.S. dollar and concerns that red-hot global demand may ease as data in Europe was less than overwhelming. Of course, the upcoming decision on the Iranian nuclear deal, as well as trade talks with the Chinese, will get some focus, as well as the Fed said that they will be announcing their decision on interest rates.
Oil prices are trying to rebound after the American Petroleum Institute reported that U.S. distillate supplies fell by a stunning 4.083mb drop in supply. The size of that drop overshadowed a much larger than expected 3.427-million-barrel build in crude supply and raises concerns about optical price spikes in diesel as farmers start their planting.
Globally, distillate supplies are tight and shale oil, despite helping the U.S. by setting a record production level of 10.62 million barrels of oil a day,will not yield as much distillate leaving the market with a very tight supply. The API also reported that gasoline supply increased by 1.602 million barrels and an expected 725.000-barrel increase in the Cushing Oklahoma delivery hub. The big build in crude is being overshadowed by a big increase in distillates stocks which is really supporting the whole complex.
Oil traders are not convinced that Israel’s prime minister’s “half ton” of Iranian nuclear documents was enough to convince the world to pull out of the Iranian nuclear deal. Even reports that Israel was seeking support from the U.S. for an Israeli strike on Iran failed to move the market. Yet, make no mistake about it. The odds that President Donald Trump will pull out of the deal are still very high.
The Fed will announce their rate decision as the dollar is already pricing in a more hawkish Fed. Really though it seems like the dollar trade is too one-sided and more than likely the Fed will disappoint the dollar bulls. Talk about the Chinese devaluing their currency to prepare for trade talks with the U.S. only raises the importance of these talks to the Chinese. While China may play hardball, there is growing global support for China to stop cheating on trade.
Bigger picture, the underinvestment in the oil market is starting to show up. When oil tanked amidst the glut we wrote that we were sowing the seed of the next shortage and that it would show up faster than people think. The oil glut is gone and now people are waking up to the fact that we may not have the capacity to meet demand in the coming years.
Bloomberg News points out that “The International Energy Agency says spending (on oil) dropped about $338 billion, or 44 percent, between 2014 and 2017. They say that production from existing fields decreases naturally every single year. Supplies equivalent to the whole North Sea were lost to natural decline in 2017, the IEA estimates.”
The Wall Street Journal Reports “California Gov. Jerry Brown said Tuesday his state was suing the Trump administration over its decision to ease national vehicle-emissions standards. Mr. Brown said the lawsuit challenges the Environmental Protection Agency’s decision to revise tailpipe emissions rules that go into effect in 2022 for vehicle models through 2025, saying the move was a violation of the Clean Air Act and the Administrative Procedures Act. California holds a waiver that allows it to set its own emissions guidelines for auto makers, and many states follow California’s lead.
The suit was filed in the United States Court of Appeals for the District of Columbia Circuit, a news release from the governor’s office said. A total of 17 states—and the District of Columbia—representing about 140 million people and more than 40% of the car market are suing.
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