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
Banking Failure Blues. The Energy Report 05/02/2023
Another bank failure, a term we hear quite often these days under the Biden administration. Oh I forgot, they’re blaming Trump again and this failure is hurting the oil price momentum again. Oil prices are very sensitive to banking turmoil and there seems to be a strong correlation with weak oil and banking woes.
Now some point to weakening US diesel demand in recent months as a sign of a coming recession but that should be tempered with the fact that winter oil demand was non-existent. HFI Research pointed out that despite a very warm February, US oil demand is just 287k b/d below 2019. Some are saying that China oil demand is disappointing even as they import record amounts of crude oil. Reuters reported that U.S. crude oil exports rose more-than-expected last month, building on a record 4.5 million barrels per day in March, as Chinese refiners snapped up cargoes to meet rising fuel demand, according to ship tracking data and analysts.
Still oil plunged yesterday on a light volume “May Day” selloff on what was said to be soft economic data from China. Yet if that is the case why did copper prices soar, normally a bellwether for Chinese economic growth. In fact, overnight The International Monetary Fund (IMF) raised Asia’s economic forecast to 4.6%. China’s recovery underpinned growth but warned of risks from persistent inflation and global market volatility driven by Western banking-sector woes. In the US we saw the S&P Global US Manufacturing final April number come in at 50.2, down from 50.4 flash, up from 49.2 in March – highest since Oct 2022 and better than the market was looking for. Zerohedge reported that “China’s “zero covid” nightmare is now long forgotten, and the long-suffering local population is finally emerging from the ashes of home lockdowns and celebrating its freedom by traveling more than ever.
According to the China Railway Group, the country tourism and consumer activities rose sharply on the first day of the five-day Labor Day holiday, as residents rushed to travel and spend after three years of Covid-19 restrictions finally ended. As Bloomberg reports, some 19.7 million railway trips were made across the country on Saturday, the highest on record for a single day.
Yet on light volume and banking concerns oil gave back a big chunk of Friday’s gain as it most likely is awaiting what the Federal Reserve will do and see if the Energy Information Administration data shows any signs of demand weakness, which so far it has not. The Strategic Petroleum Reserve did release 2 million barrels of oil last week, but even that oil drop should not stop us from seeing a product draw.
OPEC is also showing signs that they are living up to their agreement to cut output. OPEC’s April oil output falls by 190,000 bpd from March to 28.62 million bpd, led by Iraq and Nigeria. OPEC’s quota-bound members comply with 194% of pledged cuts in April (vs. 173% in March) – OPEC’S quota-bound members undershot output target by 1.2 million bpd vs. 930,000 bpd shortfall in March.
Yet for Russia, despite sanctions, they exported crude oil liked crazy mainly to China and India so they can lauder that crude and turn it into product and sell it back to Europe and the US. The Financial Juice reported that Russia’s seaborne crude flows rise with no indication of output cut. Their shipments top 4 mln B/D for only the second time since the invasion of Ukraine.
Yet macro concerns still plague oil prices that are down pretty much since the banking concerns started. They recovered a lot of the initial losses after OPEC cut output but to get to the next level they may have to be convinced that the banking woes are over and that a major recession is not imminent or panic when supplies start to get squeezed.
Fox News reports in a must read that, “The Biden administration formally issued a record of decision Monday to green-light a massive Alaska natural gas pipeline and export project that’s strongly opposed by environmental groups. The Department of Energy’s (DOE) finalized decision reaffirms the original 2020 approval of the project under the Trump administration but amends it to include additional environmental protections, according to federal filings. The $38.7 billion project – which involves an 807-mile pipeline that traverses the length of Alaska and an export terminal – would significantly boost U.S. natural gas exports to Asia. Project developer Alaska Gasline Development Corporation (AGDC), a state-owned venture founded to ensure Alaskans benefit financially from the state’s natural gas reserves, applauded the record of decision, saying it would enable the U.S. to boost energy supplies to allies. “This order is terrific news for the Alaska LNG (liquefied natural gas) project,” AGDC President Frank Richards said in April after the decision was first issued. “The Biden administration has reaffirmed the authorization for and climate benefits of Alaska LNG, which will provide Alaskans and U.S. allies with a significant source of low-emissions, responsibly produced energy consistent with international environmental priorities.” Yet now, after the Biden administration approved this, I will go into my safe space and contemplate the fate of the planet.
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