Free Pass. The Energy Report 10/31/2023

The oil price fell 4% as the market sucked out war premium after a comment by Israeli Prime Minister Benjamin Netanyahu. Israel will do everything it can to bring the hostages home and the perception that Iran will get a free pass and will continue to ship oil as if nothing happened.  Despite Iran being the main funding source for Hamas and Hezbollah, it appears there are no plans to shut down Iran’s oil flow. World leaders may be more worried about the state of their economies than they are about shutting down the funding for these terror groups. That means that Iran’s oil looks untouchable perhaps because some lack the courage to hold Iran accountable. Iran claims they had no part in planning the attack. That has traders reassess risk because so far for the global oil market, it is business as usual.

The talk of new fronts in the war developing so far has not impacted the oil supply but it may be only a matter of time. The ground invasion of Gaza has been more strategic than some had feared but the possibility of escalation continues to be high. Not only was it reported that Israel hit Hezbollah targets in Lebanon, but attacks on US bases by Iranian proxies in Iraq have happened more than two dozen times.

Bloomberg News reported that, “Saudi Arabia’s military has gone into a state of high alert following deadly clashes with Yemen’s Iran-backed Houthi rebels, who also tried to fire a missile over the kingdom toward Israel, according to people familiar with the matter. Four Saudi soldiers died last week in the fight with Houthi forces in the mountainous southwestern Jazan Province on the border with Yemen, said the people, asking not to be identified as the information is private.”

Also, there are growing concerns about slowing demand in China, again. Not only is there talk that Saudi Arabia is looking to lower the selling price of its oil, today China’s PMI fell into contraction at 49.5 falling from 50.2 and a big miss. The non-manufacturing PMI fell to 50.6 last from 51.7 in September.

Not only is Iran raking in the oil revenue but so is Russia. S&P global reports that Russian crude exports are on pace to hit a four-month high, according to S&P Global Commodities at Sea. Following a flurry of loadings during the week ending October 27, exports surged 27% on the week to 3.85 million b/d, the strongest weekly rate since the week ending June 30th. So, remind me, how are those price caps working?  The problem is it’s because the United States continues to signal pullbacks and energy production adversaries such as Russia and Iran are taking advantage of the situation. They know they can get away with murder and not fear that their oil revenue will be cut off.

People in the oil industry continue to be concerned that policies by the Biden administration are going to increase those risks going forward. Conoco Phillips CEO Ryan Lance is the latest person to warn that Biden’s Alaska oil plans are a major threat to future drilling. They promised the viability of U.S. oil projects and could impact leasing.

The diesel cracks are more than likely overdone, and it should be a good time to lock that in. On top of sanctions on Venezuela, in return for free and fair elections, it may have hit a snag. Reuters reported that  Venezuela’s Supreme Justice Tribunal said on Monday it has suspended the results of an opposition presidential primary this month, despite an electoral deal between the government and the opposition allowing each side to choose its candidate.”

The American Gas Association said its analysis shows lower natural gas prices for consumers as Americans prepare for an El Niño winter that is anticipated to bring colder-than-usual temperatures to the southern United States. Natural gas prices for 2023 are on track to resemble the 2021 norm rather than the elevated prices of 2022, according to the AGA 2023 Winter Heating Outlook, thanks in part to higher natural gas production and natural gas inventories that are above the five-year average. “We are seeing prices that are both stable and in line with recent historical trends,” said AGA VP, Energy Markets, Analysis and Standards Richard Meyer. “The return to lower pricing means natural gas bills are expected to decline this winter – even under colder conditions.”

They say that, “Over the past year, the U.S. natural gas industry has experienced record-high production, demand, and exports while supplying reliable energy to American homes and businesses amidst changing global demands. This outlook is in stark contrast with last year’s steep natural gas production declines, which contributed to a close call related to system integrity in the New York area during Winter Storm Elliott, where record-breaking demand and operational challenges forced some gas utilities to rely on contingency plans to ensure customer reliability.”

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Phil Flynn

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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