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Departing the Red Sea. The Energy Report 12/28/2023

By On December 28, 2023 - 8:23 AM · In Market Commentaries, Phil Flynn Energy Report
Oil prices are falling on light holiday week volume as more shipping companies say they will depart and traverse the Red Sea. Reuters reported that Denmark’s Maersk has scheduled several dozen container vessels to travel via the Suez Canal and the Red Sea in the coming days and weeks, it said on Wednesday, in a further sign that global shipping firms are returning to the route. The perception is that the Red Sea route is reopening and will bring supply to market weeks faster. There is confidence growing by these companies that an increased US military presence will give the Iranian-backed Houthis rebels some pause before they decide whether to attack a vessel. 
 
Yet from Iran’s point of view, this is just another win for hardline Iranian President Ebrahim Raisi who has successfully used Iran’s oil revenue to fund his terrorist ambition by supporting Hamas, Hezbollah, and the Houthi rebels that successfully carried an act of war by shutting down a
 
international shipping lane. He has been allowed to wreck havoc all over the globe mainly because the US refuses to enforce sanctions on Iranian oil. According to Goldman Sachs, Iranian production just hit another record high of 3.3 million barrels a day which should keep Iran flush with cash as they direct fund their proxies-lackeys into their next terror attack.
 
Iranian President Ebrahim Raisi must enjoy the way his country can thumb its nose at the US superpower and embarrass the US on the world stage just like the Iranian hostage crisis in 1979 that some believe Raisi was part of.  According to Wikipedia, Hussein-Ali Montazeri named Raisi, is one of the four persons involved in the 1988 mass executions of Iranian political prisoners. And now he is overseeing an Iranian oil renaissance as he tries to fulfill his ambitions of wiping Israel off the map and causing ‘death to America’. He is being helped by the billions of dollars he has received from the US as they have unfrozen billions in their frozen assets.
 
The market is also being hyped with oil demand fears. Market Watch wrote an article, “Crude oil sees first real ‘death cross’ since the pandemic plunge of early 2020.” They write that, “A bearish “death cross” pattern appeared Tuesday, with the 50-day moving average for crude futures crossing below the 200-DMA. They write that, “a death cross is seen by many Wall Street chart watchers as marking the spot that a shorter-term pullback transforms into to a longer-term downtrend. But they also point out that there are some chart watchers, such as Fairlead Strategies LLC technical analyst Katie Stockton, who wouldn’t consider that crossover a real death cross, since the 200-DMA was rising when it appeared.
 
There was a surprise build in crude oil inventories and yesterday’s American Petroleum Institute report didn’t help ease weakening demand concerns. Oil Price reported that, “Crude oil inventories in the United States rose this week by 1.837 million barrels for the week ending December 22, according to The American Petroleum Institute (API), after recording a 939,000-barrel build in crude inventories in the week prior. API data shows a net build in crude oil inventories in the United States of just over 21 million barrels so far this year.
 
Gasoline inventories fell this week by 480,000 barrels, after 669,000-barrel increase in the week prior. As of last week, gasoline inventories are now 2% below the five-year average for this time of year.
 
Distillate inventories also rose this week, with a small build of 270,000 barrels, after rising by 2.738 million barrels in the week prior. Distillates are roughly 10% below the five-year average. Cushing inventories rose by 1.57 million barrels, after rising by 1.853 million barrels in the previous week.
 
Yet today we may get more solid data to sink our teeth in. Not only do we get the Energy Information Administration ‘Petroleum Status Report” which is considered to be more accurate than the American Petroleum Institute’s report, we also get the natural gas report released today because of the holiday. The natural gas report will come out first at its normal time 9:30a central time and then the petroleum status report will come out at 10:00a central time.
 
Historically we’ve seen oil inventories fall going into the New Year because of tax reasons. Normally they like to reduce their supplies because they are taxed on supply at the end of the year. After today’s report, most traders will offset their positions and restart things in the New Year. Still we have to keep in mind geopolitical risk headlines. If we see the Red Sea shipping lanes threatened again that could reverse the selling that we’ve seen over the last 24 hours. Technically the market closed poorly, after closing strong the day before. To reverse the downside momentum, we would like to see oil close above 7936 today. A close below $73.00 today technically would look very bearish. Of course, you can always expect the unexpected on light holiday volume.
 
Javier Blas at Bloomberg reported that, “Global gasoline demand surpassed this year the record high set in 2019 before the onset of the pandemic, defying expectations of a long-term decline. So much for the peak gasoline demand that the Green Energy industrial complex promised. As electric car sales that started strong start to plummet, it’s people realize they’re not as reliable as their old-fashioned internal combustion engine the world is going to continue to consume gasoline and will continue to break records. 
 
Natural gas is trying to turn the corner and today’s inventory number may be the catalyst to push natural gas prices higher. The world on the one hand has a glut of supplies but winter is still ahead and if it does get cold we might get a little bit of a bounce. Technically the market is looking like a bottom.
 
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Phil Flynn

Senior Market Analyst & Author of The Energy Report

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