Gains and Losses. The Energy Report 01/22/2024

The oil market has been on both sides unchanged as it tries to gas barrels gained and barrels lost.  Reports that had declared a force majeure on the Sharara oil field that was shut down for 2 weeks overshadowed the loss of barrels from Russian export delays because of an alleged drone attack at a terminal of Russia’s largest liquefied natural gas producer Novatek on the Baltic Sea.

Reuters reported that they are likely to resume large-scale operations at its Ust-Luga processing complex and Baltic Sea terminal within weeks which has disrupted naphtha flows to Asia. The tightening of supply from Russia, following fears of disruption in European naphtha exports to Asia from Yemeni Houthis’ attacks on ships in the Red Sea, is driving up naphtha prices and refining margins in Asia.

Here at home even as the nation gets a warmup the recent polar plunge will reduce output from North Dakota for months as the subzero temperatures resulted in more than 60 incidents involving leaks or equipment failure and North Dakota says as reporting comes in that number is expected to climb. EBW Analytics says that fundamentally, North Dakota production disruptions from Winter Storm Gerri may take more than a month to fully return. In the Middle East, meanwhile, Iranian-proxy Houthi attacks and subsequent tanker reroutings may add up to 30-50 million barrels of oil on the water.

Also, support is coming from expectations of an escalation in tension between the US and Iran as they move to crack down on the Hothi Rebel and concerns about China showing a show of force in Taiwan. Last week reports that more than 20 Chinese warplanes were detected around Taiwan, with 11 crossing a sensitive median line separating the self-ruled island from China, Taipei’s defense ministry said Thursday, the first significant show of force since the weekend’s presidential election.

Supply-side risks may become more intense as a global supply deficit becomes more apparent. Art Berman points out that OPEC 2024 demand average of 104.4 mmb/d is 1.9 mmb/d more than 2024 EIA consumption average of 102.5 mmb/d. Blended OPEC-EIA data indicates an average supply-demand deficit of -1.1 mmb/d in 2024.

Gasoline prices are mixed. On the one hand demand for gasoline went down as snow and cold kept people close to home on the flip side production by US refiners has been reduced US output has been reduced as far as oil production our expectations are after things warm up a bit we will continue to see the market is undersupplied and that should be supportive for prices natural gas prices on the other hand are tanking after the weather forecast start to look a lot warmer still there is concerns that we may see another polar vortex develop in a week or two and if that’s the case you should be putting on some calls to protect against an upside spike.

EBW wrote that front-month natural gas imploded 24% last week as the fear-and-momentum-driven sprint higher ahead of Winter Storm Gerri unraveled entirely as forecasts warmed and oversupplied fundamentals collapsed prices. Friday’s $2.519 close marks a year-to-date low. Volatility may remain elevated over the next 7-10 days as rapidly evolving weather forecasts pair with February options expiry and final settlement. The medium-to-long term fundamental outlook remains bearish, with continued risks of eventually testing $2.00/MMBtu.

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