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
Monday Morning Commute. The Energy Report 05/08/2023
Oil prices are soaring after Friday’s surprise blockbuster jobs report on a assumption that with all of those people working, they may actually commute to work. Yet the real reason that oil is bouncing is hope that the regional banking crisis can be contained and may not be systemic.
A big rebound in Pac West Bank share after cutting their dividend and words by Warren Buffet at the 2023 Berkshire Hathaway shareholder meeting, seemed to put the market at ease. That helped rally oil that had tanked on baking fears, ignoring the fact that we will see massive crude oil inventory drops in the coming weeks and months.
Reuter reported that, “Buffett criticized how politicians, regulators and the press have handled the recent failures of Silicon Valley Bank, Signature Bank and First Republic Bank saying their “very poor” messaging has unnecessarily frightened depositors. “Fear is contagious,” he said, adding that “you can’t run an economy” when people worry if their money is safe in banks.”
An oil operation can’t be run without cash and credit and the risk off in the sector diverged prices from fundamentals. This week we will get a report from OPEC and the International Energy Agency as to their viewpoint regarding supply and demand. We’re hearing reports that Saudi Arabia is spending a lot of money and that they want to keep oil revenues high. It will be interesting to see if the tensions between OPEC and the International Energy Agency are acknowledged in their monthly report.
Assuming there are no other financial and banking troubles, gasoline prices look poised to regain the losses from the banking crisis. Look to buy breaks and hope that another bank doesn’t break. Gasoline pump prices, which were pulled back due to a seasonal low, should start rising again.
Natural gas looks like it’s trying to bottom technically but EBW analytics is not so sure. They say that, “natural gas repeatedly dropped throughout last week, setting fresh intraday lows each day on route to a 27.3¢ (-11.3%) week-over-week loss. Bearish technical and lackluster fundamentals each suggest another test of support sub-$2.00/MMBtu cannot be ruled out. The natural gas market appears to continue to underestimate the magnitude of massive May and June storage builds ahead. The next eight injections could potentially average over 100 Bcf/week to carry storage inventories to 450 Bcf above five-year average levels.
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