Rational Energy Policy. The Energy Report 07/16/2024

Many in the US oil and gas industry are cheering President Trump’s Vice Presidential pick JD Vance as a sign that the United States might be headed back to a rational energy policy. Industry leaders have been frustrated by the Biden administration’s unfounded and unfair attacks but really worry that the policies that the Biden administration has put in place is not only creating the energy crisis of the future, but also leaving our country in a situation that will not allow us to compete in the global economy but also damage our national security.

It has been the crazy and vindictive Biden energy policies, including the cancelation of the Keystone XL pipeline, the short sighted electric car push, drilling moratoriums or energy decisions based on diversity, equity and inclusion, and a slew of incomprehensible executive orders that has put the US energy industry in a bad situation. The industry is looking forward to having adults back in the room. They look forward to having an administration that understands the vital nature of the US oil and gas industry. They look forward to an Administration that will work with them instead on shunning them and work against them. The Industry wants an energy policy that is working to provide cleaner energy and have an energy policy that is based on realities and not in aspirational politics.

Vance is an energy realist. He understands that to power the future economy and to increase our National Security, the US, the cleanest producer of fossil fuels, will have to continue to lead the way to meet the undeniable demand for fossil fuels in the future.
Maybe oil prices today are lower in deference to the fact that the Trump Vance ticket looks like it’s destined to win in November but really, it’s probably more being impacted by the fact that we’ve passed the 4th of July holiday and weak China demand and a rising dollar.

Leave it to the Fed Chairman Powel to cool off oil prices. Reuters reported that Federal Reserve Chair Jerome Powell said on Monday the three U.S. inflation readings over the second quarter of this year do “add somewhat to confidence” that the pace of price increases is returning to the Fed’s target in a sustainable fashion, remarks that suggest a turn to interest rate cuts may not be far off. “In the second quarter, actually, we did make some more progress” on taming inflation, Powell said at an event at the Economic Club of Washington. “We’ve had three better readings, and if you average them, that’s a pretty good place.” What we’ve said is that we didn’t think it would be appropriate to begin to loosen policy until we had greater confidence” that inflation was returning sustainably to 2%, Powell continued. “We’ve been waiting on that. And I would say that we didn’t gain any additional confidence in the first quarter, but the three readings in the second quarter, including the one from last week, do add somewhat to confidence.”

After that last comment, the dollar seemed to rise and if the markets seem to interpret them while the Fed is still on track to cutting rates, it’s not going to happen as early as July. Not that many people thought that was going to happen anyway. After Mr. Powell spoke the price of the dollar went up and oil went down.

China oil demand seems to weigh on prices as well but even as the market is focused on short term fundamentals, the bigger picture for oil continues to look very bullish. We continue to expect to see a supply deficit leading to bigger drawdowns in the future and the market seems less concerned about that today as we head to the option expiration for the August crude future tomorrow. And while the market seems to be a little bit weak starting today, perhaps the American Petroleum Institute inventory numbers can change that momentum.

We’re expecting another drawdown in crude supplies of 3 million barrels, and we also expect the inventories of both gasoline and diesel will fall by three million barrels as well. Refinery runs should be unchanged. There is some concern that we will see some impact from the Hurricane Beyrl in the numbers. That may be another reason why we are seeing some hesitation to buy in.

Natural gas is up a little bit this morning and trying to hold its ground after some fundamentals that normally would be very bearish.
Reports show that the Freeport LNG export project in Texas canceled at least four scheduled shipments because of Hurricane Beryl, according to Bloomberg News. Extended power outages in Texas also should have hurt demand and now there are some worries on the production side. Maybe once again producers will produce us into a glut.

Celsius Energy tweeted that with natural gas prices now seemingly on the fast track back to $2/MMBTU, commodity traders may reinforce producers to re-institute production shut-ins to restore S/D balance. So far, we have not seen this with output holding near multi-month highs just shy of 102 BCF/d.

Yet despite all these fears technically the market seems to be holding in there. It’s almost as if the market’s looking ahead to what they believe will be record demand for natural gas.
The anticipation of record liquefied natural gas exports in the United States and more hope that it will increase in the years ahead. Now the industry has renewed hopes that US LNG exports will support prices and create jobs. Now the real possibility that a Trump Vance ticket will mean that the United States will dominate the exporting clean liquefied natural gas to the world. That will lead to reducing coal emissions and help reduce carbon faster than any wind turbine or solar panel ever could.

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