They Made It! The Energy Report 01/18/2024

The Houthi Rebels must have been a little bit disappointed when the Biden administration took them off the terror list. It was one of Joe Biden’s first major foreign policy decisions. Less than a month after taking office in January 2021, the United States president lifted the “terrorist” designations imposed by his predecessor, President Donald Trump, against Yemen’s Houthi rebels. Under President Trump, the rebels did not have to prove themselves. Oh sure, they were causing havoc in Yemen and lobbed the occasional rocket at Saudi oil fields but deep down inside they knew that being on that list the world knew that they were terrorists. Yet When Biden removed them, it must a been a huge blow to their egos. They may have even lost the respect of all the other terror groups and maybe that’s why they had to go out and prove themselves again.

Under the Biden administration, they took it to a whole new level. Now instead of their limited terror acts, they take on the world by attacking ships and effectively shutting down most of the transit in the Red Sea in an act of war on many nations. So, the Biden administration had no choice but to put them back on the list and so it’s now official. You made it Houthi’s. I am sure your Iranian check writers are very proud of you. You are back where you belong.

And for oil, just when you thought that oil demand was supposed to be peaking out. The agency that made that prediction is now raising its oil demand forecast…again. The International Energy Agency (IEA) that brought you ‘peak oil production’ and then ‘peaking oil demand’ is now raising its 2024 global oil demand growth forecast by 180,000 BPD to 1.24 mln barrels per day (BPD) citing improved GDP outlook and Q4 2023 price drop. Still, not to worry, the IEA is predicting that, “Barring significant disruptions to oil flows, the market looks reasonably well supplied in 2024.” So you got that going for you.

The economy is doing better than expected and that means higher oil demand. In China, despite the negativity about demand, OPEC yesterday said higher global economic growth and solid Chinese activity will lead to a strong rebound in global oil demand, which will grow by 1.8 million barrels per day in 2025, OPEC said on Wednesday in its first detailed assessment of 2025 demand. That is even as China this year has been importing record amounts of ‘cheap oil’. Reuters reported that, “Chinese refiners are actively booking crude oil cargoes for delivery in March and April to replenish stocks, locking in relatively low prices and in anticipation of stronger demand in the second half of 2024, trade sources said.

US oil demand is also set to surge above previous expectations as the US seems to have avoided a recession. And for all of you people who are bashing Bidenomics, here comes a report by Forbes that some people are profiting from it. Forbes clearly shows that Joe Biden’s net worth jumped to an estimated $10 million, which is up from $8 million when he first took office. I just hope Huner kicked in his 10%.

Of course Biden’s dreams of reducing oil and coal demand are falling faster than the battery charge on an electric car on a sub-zero-degree winter day. Not only is the IEA predicting that the 2024 world oil supply to rise by 1.5 MBPD to a new high of 103.5 MBPD,  it is also being driven by record-setting output from the US, Brazil, Guyana, and Canada. But what the IEA is hoping for is the lifting of the OPEC production cuts. The IEA says that, “Strong growth from non-OPEC+ producers could lead to a substantial surplus if OPEC+’s extra voluntary cuts are unwound in 2Q 2024. They are also praying that non-OPEC+ oil output gains will outpace demand gains in 2024. I guess everyone has hope and a dream, but just in case, the IEA says, “We stand ready to respond decisively if there is a supply disruption and the market needs extra oil.” Houthis and Iran take note.

For oil, the market is still locked in a massive Bermuda-like triangle formation on the chart which normally predicts a major move, either up or down, when it finally breaks out. Until it does, it seems that the market is lost in the Bermuda triangle that is seen in more a time frame on the charts. The key will be betting on when and which way it will break out. Based on what I am seeing, I thinking we will see an upside breakout and if I am right, it should be sooner rather than later.

The American Petroleum Institute report did not help that call. The APR reported that crude oil surprisingly increased by 483,000 barrels. That was a small build compared to the expected drop of 2.5 million barrels. Cushing, OK did see a 1.980 million barrel draw but again we saw a huge build in products with an increase of 4.68 million barrels for gasoline and distillate inventories an incredible build of 5.210 million barrels. Today we will get the Energy Information Administration report and that will be delayed at 10:00 cst because of the King Day holiday.

Natural gas report comes out on time and the average estimate is somewhere from the 160 BCF draw to 180. Next week it could be higher as we should see a drawdown close to 300 BCF because of the record-breaking cold we’ve been in. Production has been impacted and we’ve seen demand hit record highs. The key thing for this market is going to be whether or not this polar vortex is done, or we get a second wave of extreme cold. The market tried to bounce back as more people were not as convinced that the warm-up that everybody expected to see was going to be as warm as advertised. They are also worried about the possibility of a second wave of a polar vortex which could push it back to record-breaking low temperatures and could extend winter into March. If that’s the case, natural gas could still spike. February should still lead the way, but March could follow especially if the cold is as predicted after the contract options come off the board next Wednesday. Sub-zero temperatures and harsh weather have caused delays and cancelations of LNG export cargos from the US.

Reports say that the Indian navy responded to a drone attack on a ship in the Gulf of Aden. Bloomberg reports that the conflict sprawling out of Gaza and across the Middle East might be one of proxies, but Iran has announced to the world – and specifically to Israel – that it’s willing to enter the fray itself when pushed. Bloomberg writes that, “In less than 24 hours, Tehran launched missiles at Iraq, Syria, and Pakistan, claiming targets as diverse as an Israeli spy base, Islamic State, and a little-known separatist militant group. Pakistan retaliated today with its own strikes on “terrorist hideouts” in Iran, reportedly killing nine.”

Geo-political risks are rising. The IEA might get nervous.

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