China Cuts Both Ways. The Energy Report 07/24/2024

Oil prices are bouncing back from a six-week low as the market tries to get the story straight. Should the oil market be concerned about weakening demand or evidence of rapidly tightening supply?

Oil prompt spreads in the market suggest tightening supply and a big drop in the US oil inventories as reported by the American Petroleum Institute (API) is feeding into that narrative.

Should the market buy into another report of a potential ceasefire between Hamas and Israel, or should they have learned by now that the likelihood of a ceasefire continues to be a long shot?

Should the market be selling off on expectations of a president Donald Trump victory or should we be preparing for the possibility of a Kamala Harris presidency which would include more than likely a ban on fracking in the most anti fossil fuel agenda surpassing even that of her predecessor the outgoing President Joe Biden?

On the one hand you do have some legitimate demand concerns

China’s economy is struggling and Europe Delivered some weaker than expected manufacturing data this morning.  Euro manufacturing fell to 45.6 rating, well below the estimate of 46.1.  The service sector wasn’t much better, coming in at a rating of 51.9%, well below the 52.9% expected. The composite was able to avoid a recession but still came in weaker than expected at 50.1.

Yesterday oil traders and algos seemed to react to a Bloomberg headline that exclaimed “Cheap Price for North Sea Oil Shows Demand Remains Muted! ! GS Caltex bought prompt Forties crude at very low price ! Sellers struggled to find buyers for unsold Forties cargoes!

Yet despite the selloff the Brent Time spreads still suggested that demand for oil is still exceeding supply.

In the US the API report confirms what the spreads have been saying all along, and that is demand is exceeding supply, The API report that as crude oil inventories fell by 3.9 million barrels last week. That was the sixth week in of row and declines and this week was joined by a more than expected 2.8-million-barrel drop in gasoline inventories and a more than expected drop of 1.5-million-barrel drop in distillate inventory.

We also had a report stockpiles of oil products at the UAE’s Port of Fujairah declined 8.3% in the week ended July 22, the first drop in three weeks as exports rebounded, according to Fujairah Oil Industry Zone and ship-tracking data.

The breakdown showed a 15% slump in middle distillates to 2.711 million barrels, the first drop in four weeks. Light distillates fell 8.5% to 6.236 million barrels, the first drop in three weeks, while heavy distillates decreased 5.9% to 9.415 million barrels. They all fell from five-week highs a week earlier.

This comes as a Canadian wildfire could impact as much as 388,000 barrels a day of oil production. Never a good time to lose Canadian oil output but because the United States imported a record amount of oil from Canada last week is coming at a bad time for US consumers.

The Biden Administration and the Democratic Nominee Kamla Harris are the most US oil and Gas administration in history.  They have tried to make it harder and more expensive to produce fossil fuels unless you are talking about Fossil fuels in Iran or Venezuela.

Reuters is reporting that “India’s Reliance Industries (RELI.NS), opens new tab has received approval from the United States to resume importing oil from Venezuela despite Washington’s sanctions, a source familiar with the matter said on Wednesday. The United States in April re-imposed sanctions on Venezuela’s oil sector in response to President Nicolas Maduro’s failure to meet his election commitments but said some firms would be authorized to trade and operate in Venezuela.

Of course, the electric car push really hasn’t been that friendly for the environment as we know it takes almost three times the carbon emissions to produce an electric car than it does the internal combustion engine. So, it’s interesting to see how politicians are doubling down on what is ultimately a losing strategy

Bloomberg News reported in a must read that “Commission President Ursula von der Leyen is sticking to her guns on banning sales of combustion-engine cars by 2035.

Bloomberg Writes “But her ambitions clash with the realities makers of electric vehicles are facing. US, German and French manufacturers are suffering from soft demand and producing EVs up to 45% below initial expectations. Some, like Porsche and Mercedes-Benz, are abandoning sales targets for the segment, while the EU’s biggest battery producer is looking to broaden sales beyond the car industry. All eyes are now on von der Leyen, who is due to present her Clean Industrial Deal within 100 days of the start of her second term. The plan will aim to preserve climate goals while boosting the competitiveness of European manufacturing.”

Based on today’s EU economic data, what she is doing is not working.

The oil and product sell- off yesterday is partly due to the summer doldrums, We think the demand fears are overstated at least when you compare it to supply.

Ultimately if supply continues to fall prices are still vulnerable to upside price spikes this dip could be a good opportunity to lock in some hedges once again or at least present some opportunities for some great day trades.

Just can’t keep that natural gas market down. The Freeport LNG export terminal is coming back faster than expected and the possibility that we could see the most significant heat of the summer is starting to play into price.

Keeping an eye on the Fox Weather Channel ap, I’ve noticed that the Atlantic for right now has been extremely quiet.

That is almost amazing because some of the hurricane prognosticators were calling for a very active season. So even the market still recovers from the aftermath of Hurricane Beryl on the plus side it looks clear right now.  Yet stay close to the Fox Weather ap for changes.

EBW analytics is warning that for natural gas “ the largest risk may lie in rebuilding speculator shorts, boosting chances for a sizable NYMEX short-covering rally even absent fundamental justification.

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