Unbreakable Demand. The Energy Report 05/19/2023

Even as Fed Officials start raising the specter of higher interest rates, global oil demand hit a record high and the Nasdaq looks unbreakable. The Nasdaq went parabolic even as the super hawk James “Jim” Bullard, the president and CEO of the Federal Reserve Bank of St. Louis, said that higher interest rates are insurance against inflation, and he favored a rate hike in June. Another insurance against inflation is to get Washington to stop spending money. I can dream a dream, can’t I?

Yet it was not just James Bullard that sent the dollar soaring and yields rising but also Dallas Fed President Lorie Logan said that as of right now a pause in rate hikes is not in order, though that could change in the coming weeks depending on incoming data. She said that, “After raising the target range for the federal funds rate at each of the last 10 FOMC meetings, we have made some progress, the data in coming weeks could yet show that it is appropriate to skip a meeting. As of today though, we aren’t there yet.

Those comments increased the chances of a rate hike in June and crushed commodities especially gold and grains but oil, while down, held up well and above key support. As oil demand refuses to break, the fact that global oil demand hits all- time high and the strong Nasdaq suggests that the tech sector expects big things soon, betting that the rate hiking cycle soon will be over.

As reported yesterday, the IEF said that global oil demand rose by 3.0 mb/d month-on-month in March to the highest level ever recorded by JODI-reporting countries, driven by growth in China and the US. China’s total product demand increased by 1.6 mb/d month-on-month to 16.79 mb/d – the third-highest level ever reported for the country in JODI. Global crude oil production fell by 0.5 mb/d in March driven by lower production in the US, China, Angola, Canada, and the UK. Global inventories of refined products fell by 39.6 mb in March while crude inventories declined by 0.7 mb. Total crude and product inventories remain 336 mb below the five-year average.

The IEF said that notably, this month’s update did not include March data for Russia, but February oil data for the country was included for the first time. Russian crude production rose by 133 kb/d in February and stood 116 kb/d below year-ago levels. 

In the longer term, the mantra that the Net-Zero drive would reduce demand is not holding water either. Javier Blas of Bloomberg News pointed out in a tweet that Exxon Mobil in SEC filing stated, “It is highly unlikely that society would accept the degradation in global standard of living required to permanently achieve a scenario like the IEA NZE [Net Zero Emissions by 2050]” So you mean Americans are not going to give up their hamburgers and eat bugs after all? I had better pull my investment back on that new McBug burger.

So, oil prices have been slaughtered by US banking woes and a Federal Reserve that seems fixated on creating a global recession, yet supply and demand data refuses to fit the bearish narrative. Talk that China’s oil demand is disappointing and talk that Russia’s oil production with discounted prices is creating an oil glut, is not aliening with the data. Rather what the data is showing is quite the opposite.

Reuters reported that Chinese refiners dipped into crude oil inventories in April for the first time in 18 months, as high processing rates exceeded the volume of crude available from both imports and domestic output. Refiners processed 61.1 million tonnes in April, equivalent to 14.87 million barrels per day (bpd), which was the second-highest on record and followed on from the all-time peak of 14.9 million bpd in March.

Yes, Russia was selling more oil at a discount but now because demand is rising, they are commanding more money. Reuters reported that Russian blend of Urals oil strengthen to a – 7.5 dollars to $8 a barrel against France at the livery and Chinese ports which has been the highest price commanded for Russian type oil since last December. The data shows that the price of oil is underestimating the tightness in the market.

OPEC is not happy with the disconnect of oil prices and supply and demand. Bank of America is predicting that OPEC is likely to take more barrels out of the market. The risk is growing for shorts and near record speculative short positions in the market may be forced to cover as the global supply situation will continue to tighten.

Now today in Gotham City, we hear from the dynamic duo. No, not Batman and Robbin, even better, Fed Chair Jerome Powell and Former Fed Chair Ben Bernanke.  I have a feeling that if Mr. Powell dampens expectations of a June rate hike, then oil and products should soar. There are still significant risks to the upside. 

Natural gas prices hit the highest level since March 14th. Myra Picache Saefong at MarketWatch reported that, “Natural-gas futures finished sharply higher Thursday after the U.S. Energy Information Administration reported a smaller-than-expected weekly rise in domestic natural-gas supplies. Inventories of fuel in storage climbed by 99 billion cubic feet for the week ended May 12, the EIA said. Analysts called for a storage increase of 106 billion cubic feet on average, according to a survey conducted by S&P Global Commodity Insights. “This might be called the ‘white flag’ natural gas report as it signals a surrender and retreat from U.S. gas producers, but also it reflects shut production from the Alberta [Canada] wildfires,” said Phil Flynn, senior market analyst at The Price Futures Group. Baker Hughes BKR, +2.55% reported on May 12 that the number of active U.S. rigs drilling for natural gas saw a weekly drop of 16 to 141 rigs, implying a slowdown in future natural-gas production. Total working gas in storage for the latest week was at 2.240 trillion cubic feet, up 521 billion cubic feet from a year ago and 340 billion cubic feet above the five-year average, the government said.

You need to invest in yourself! Tune to the Fox Business Network because they are invested in you!

Call to get signed up for the Phil Flynn Energy Report and updates into your inbox by calling 888-264-5665 or email me at pflynn@pricegroup.com.

Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

141 West Jackson Blvd., Suite 1920, Chicago, Illinois 60604

312 264 4364 (Direct)  |  888 264 5665 (Direct)  |  800 769 7021 (Main)  |  312 264 4303 (Fax)

www.pricegroup.com

Please do not leave any instructions for orders in your message, as we cannot execute instructions left through email or voicemail. Orders must be entered via direct verbal communication with a representative of our firm. We cannot be held responsible for orders left in any other manner.  PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Investing in futures can involve substantial risk & is not for everyone. Trading foreign exchange also involves a high degree of risk. The leverage created by trading on margin can work against you as well as for you, and losses can exceed your entire investment. Before opening an account and trading, you should seek advice from your advisors as appropriate to ensure that you understand the risks and can withstand the losses. Member NIBA, NFA.

Questions? Ask Phil Flynn today at 312-264-4364