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 are back on the rise as Russian President Vladimir Putin ordered a partial mobilization of reservists and warned the world that when it comes to using all the means at his disposal that he was not bluffing. Yet beyond the obvious risks posed by Russia using oil and gas as a political weapon and God forbid it using nuclear weapons, tight supply realities are also creeping into the marketplace. We saw that yesterday in the ultra-low sulfur diesel contracts that continue to rally in what was a risk-off day ahead of today’s all-important Fed rate decision and comments about the future.
Oil and oil products and even natural gas for most of the week have been focused on the fear that the Federal Reserve might push us into a recession. Yet even if they do, oil and natural gas supplies will be tight. Now add to that the fact that the tropical storm map in the Atlantic looks like someone spilled some coffee on it with storms popping up everywhere increasing the odds that at least one of these storms will get into the Gulf of Mexico and cause havoc next week.
Bourgeoning supply and demand market fundamental realities may force energy bears to exit the market quicker than young men want to leave Russia after Vladimir Putin said that they may call up 300,000 reservists to fight the war that Russia is losing militarily. Reuters reports that, “One-way flights out of Russia were selling out fast on Wednesday as Putin’s announcement, made in an early-morning television address, raised fears that some men of fighting age would not be allowed to leave Russia.
The supply side should be coming back in and the focus in yesterday’s American Petroleum Institute (API) report seems to suggest that we’re going to continue to see tightening supplies of winter fuels going into winter. Oil Price.com reported that the (API) reported a build this week for crude oil of 1.035 million barrels, while analysts predicted a bigger build of 2.321 million barrels. The build comes as the Department of Energy released 6.9 million barrels from the Strategic Petroleum Reserves in the week ending September 16, leaving the SPR with 427.2 million barrels.
In the week prior, the API reported a build in crude oil inventories of 6.035 million barrels after analysts had predicted a draw of 200,000 barrels. The API reported a build in gasoline inventories this week of 3.225 million barrels for the week ending September 16, compared to the previous week’s 3.23 million-barrel draw. Distillate stocks saw a build of 1.538 million barrels for the week, on top of last week’s 1.75-million-barrel increase. Cushing, OK inventories were up by 510,000 barrels this week. Last week, the API saw a Cushing increase of 101,000 barrels. Official EIA Cushing inventory for the week ending September 9 was 24.648 million barrels, down from 24.783 million barrels in the prior week according to Oil Price.
I think it’s very likely that in today’s Energy Information Administration (EIA) Petroleum Status Report, we could see a surprise drawdown of distillates. If that is indeed the case, we could see the distiller continued to support the entire petroleum complex.
Hurricane Fiona, tropical storm Gaston, as well as three disturbances to be potentially named later, are keeping energy traders guessing as to what may come next. Some models have storms getting into the Gulf of Mexico next week but it is way too early to make those predictions. Yet with the supply side being as tight as it is and the geopolitical risk factors running high, being too short this market next week could have high consequences. Make sure you download the Fox weather app to keep up with the latest developments of this rash of storms.
Natural gas prices are fighting off normal seasonal weakness as they try to balance the fact that inventories going into winter are still way too low. We expect to see the biggest injection into the supply sometime this week. The reality is in the big picture, natural gas inventories and US supplies for exports mean demand is going to exceed record-breaking US production levels. A harsh winter means that natural gas prices could very easily eclipse all-time high prices. Make sure that you are hedged and prepared for that scenario. The EIA last week’s natural gas supply was 11.3% below the five-year average.
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