The Edge. The Energy Report 03/11/2024

The crude oil market has been edging lower reluctantly as banking worries and China’s economy and US regional bank concerns are raising demand fears even as global supplies tighten. WTI rejection of $80 a barrel has some wondering whether the move is over. Hedge funds are back, ramping up on the short side of the market trying to keep prices under control. Yet seasonal factors and geopolitical risk factors will keep the market from falling too hard.

Cease-fire hopes were dashed Biden issued a ‘red line’, warning Israel not to attack Rafah. Biden is trying to balance support for Israel against the screaming support for the Palestinians in his party. This is the latest attempt by Biden to appease the lefties in his base.

A pull-back in oil rigs and a cut in US oil investment will start to be felt as we head into the summer driving season and that normally will add 10 to 15 cents a gallon to the prices at the retail levels. This week we are looking for draws in gasoline and distillate as well as crude in a bullish trifecta and another weekly drop in US crude oil production.

China continues to be a source of speculation for the bears. Forget the fact that Chinese refinery reruns are at all-time highs, the state of the Chinese economy is a worry. China’s crude imports were viewed as mixed.

Yet Reuters reported that, “Saudi Aramco Chief Executive Amin Nasser said on Sunday the oil giant was looking at further opportunities to invest in China, where he said oil demand was robust and growing. State-owned Aramco has been ramping up its China presence in a string of deals in refining and petrochemicals, some of them with crude offtake agreements attached. “So far we are in the early part of 2024, demand is healthy and growing in China,” Nasser said on a media call following the release of results that showed net profit falling 24.7% to $121.3 billion on lower oil prices.

China imported 10.74 million barrels a day of crude oil during January-February of 2024 against 10.4 million barrels a day in the corresponding period of 2023, registering a growth of 3.3 percent. The Chinese Lunar New Year holiday and the travel associated with it helped crude oil consumption during these two months according to Hindu Times.

Reuters reported that U.S. energy firms this week cut the number of oil and natural gas rigs operating for the first time in three weeks, energy services firm Baker Hughes (BKR.O), said in its closely followed report on Friday. The oil and gas rig count, an early indicator of future output, fell by seven to 622 in the week to March 8, the lowest since Feb. 16.  Baker Hughes said that puts the total rig count down 124 rigs, or 16.6%, below this time last year.

Natural gas is trying to bottom. The market is expected to see more production cutbacks. The announcement by EQT, the largest US natural gas producer, that said it would cut its production by 30–40 billion cubic feet (Bcf) through March 2024 seems to have given the markets a potential bottom and expectations of more production shut-ins.

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