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Phil Flynn

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

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What War? The Energy Report 11/02/2023

By On November 2, 2023 - 8:37 AM · In Market Commentaries, Phil Flynn Energy Report
Oil prices, in a volatile session, wiped out the so-called ‘war premium” but now still must face a very tight market and will get a further boost based on comments by Fed Chairman Jerome Powell that perhaps the rate hiking cycle has ended. The oil market is convinced that the Biden administration will lack the courage and foresight to crack down on the Iranian oil supply and will continue to allow Venezuela to export oil even after they seemed to violate the agreement they had with the Biden team to allow free and fair elections. Maybe the Biden team, after looking at recent polls, thinks that free and fair elections are probably overrated anyway.

Yet beyond the noise, technically the oil market has been a beautiful trade. If you followed moving averages and took profits, there have been fantastic sales and great buys. Today the long side is back in favor but still has to close above the averages to confirm that the lows are in. Yet based on supply and demand, the upside should be much larger than the downside risk.  If the Fed calls off the dogs, the bottom for oil should be very close to being in.

US inventories are still way too tight. One year after the Biden administration’s ill-fated tapping of the Strategic Petroleum Reserve where they announced the release of 180 million barrels of oil, the supply side in the US is still too tight. The Energy Information Administration (EIA) reported that U.S. commercial crude oil inventories excluding those in the Strategic Petroleum Reserve increased by 0.8 million barrels from the previous week. At 421.9 million barrels, U.S. crude oil inventories are about 5% below the five-year average for this time of year.  Now take into account that the SPR is at the lowest amount of demand cover since the 1980’s, the risk of a price spike is high if there is a disruption in supply. You know, something like a war in the Middle East or some crazy scenario like that.

Total motor gasoline inventories increased by 0.1 million barrels from last week and are about 2% above the five-year average for this time of year. So we have that going for us. The EIA says that, “Low gasoline demand in combination with the seasonal switch to winter-grade gasoline has made gasoline less profitable to produce, reducing the difference between gasoline blendstock and crude oil prices to multiyear lows in October 2023.

The RBOB-Brent crack spread decreased in August after reaching a summer high of 94 cents per gallon (gal) on July 27, ending the month at 70 cents/gal. The crack spread subsequently fell in September, ending the month at 17 cents/gal. In October, this crack spread averaged 16 cents/gal, the lowest monthly average since December 202. Yet if you look at the diesel crack you can see increasing concerns about the US winter supply situation. The EIA reported that distillate fuel inventories decreased by 0.8 million barrels last week but are still about 12% below the five-year average for this time of year.

For years I have been warning that the green energy movement has been destabilizing not only the global energy mix but also has been destabilizing the world order. It seems like the bad guys in the world are taking advantage of the tightness of energy supply. They’re using energy revenues to fund terror and the world can’t do much about it. Consider the fact that the world has been moving from reliable sources of energy to unreliable sources of energy in the name of saving the planet. It is causing big problems and it looks like it could cause even bigger economic problems down the road.

Consider this latest story. Reuters reports that, ”BP’s renewables boss said on Wednesday the U.S. offshore wind industry is “fundamentally broken” as BP and its partner Equinor (EQNR.OL) study options to develop huge projects off the coast of New York after writing down $840 million of their value.

Natural Gas is still looking like it’s getting prepared for winter. A cold winter could shock prices but producers are doing their best to meet growing global demand and record-breaking gross withdrawals. The EIA pointed out that, “In August 2023, dry natural gas production increased year over year for the month for the 29th consecutive month. Preliminary dry natural gas production in August 2023 was 3,236 billion cubic feet (Bcf), or 104.4 billion cubic feet per day (Bcf/d). This level was 3.5% (3.5 Bcf/d) higher than August 2022 (100.9 Bcf/d) and the highest for any month since 1973, when we began tracking dry natural gas production. Gross withdrawals also increased from August 2022/ Gross withdrawals: 3,844 Bcf for the month, or a daily rate of 124.0 Bcf/d  / 3.1% increase compared with August 2022 (120.3 Bcf/d) was the highest daily rate of gross withdrawals for the month since 1980, the earliest year in this data set.

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Call me to open your futures and options trading account at 888-264-5665 or email me at pflynn@pricegroup.com.

Phil Flynn

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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