Weakness In Different Forms. The Energy Report 07/30/2024

Oil prices are shaky as Asian markets are selling off as investors run for cover ahead of big economic reports this week. This comes as the German GDP went into contraction with -1.0 growth as their economy suffers because of its blind following of the green energy agenda. The rest of the EuroZone did a bit better with 0.3% reading beating the forecast of 0.2%, but still weaker than the previous 0.3% growth number

On one hand this data confirms fears about the potential for weakening energy demand but also opens the door for more stimulus around the globe. With the US poised to cut interest rates and China showing a wiliness to do what it takes in a world where the global supply versus demand balance is still tighter than it’s been in years. While the market backwardation has backed off a bit, the margin for error is still razor thin.

And while the market has been downplaying geopolitical risk factors, the Biden administration may be guilted into putting more sanctions on Venezuela after most people believe that Vince Maduro stole the election, even though they desperately want that oil as they head into the US presidential election.

The Biden Team also moved to avoid criticism for their politicization of the Strategic Petroleum Reserve by buying back 4 million barrels for the caverns. Yet that should only tighten US supply more as we most likely will see another draw on crude oil inventories this week.

I am expecting to see a 2-million-barrel drawdown in crude oil, and I expect to see similar drawdowns in products.  Last week the EIA said that US crude supply is about 5% below the five-year average for this time of year. Total motor gasoline is about 2% below the five year and distillate fuel inventories are 9% below the five-year average.

Ok I know I slammed BP, but I will give credit where credit is due. Reuters reported that BP increased its dividend and extended its share repurchasing program on Tuesday as it reported a forecast beating second-quarter profit of $2.76 billion, with weak refining offset by stronger oil prices and retail. The result is likely to ease pressure on CEO Murray Auchincloss after BP fell short of profit expectations in the previous two quarters. The 53-year-old Canadian who took office in January, has vowed to revamp BP’s operations and focus on the most profitable ones, mostly in oil and gas.” Let’s hope this is a trend.

August natural gas went off the board below 2 dollars in a sign that many producers are struggling. Associated gas keeps flowing and even with near record demand it’s hard to keep prices high. Part of the problem was the Freeport LNG closure and that was enough to the scales to that ignominious close.

Production of gas may be helped by some reversal of inflation in drilling. Woods MacKenzie reported that after peaking in 2023, Lower 48 well costs are expected to decline 10% in 2024 and 1% in 2025. According to the report, “2024 tight oil costs: the push and pull between efficiency and OFS rates” lower pricing for OCTG, propellant and diesel, combined with substantial drilling and completion efficiency gains, have helped reduce E&P costs. However, additional reduction will be difficult in this environment, as oilfield equipment and services companies (OSF) seek to keep margins high.

EBW Analytics says that national electricity loads sank by nearly 7% week-over-week alongside faltering cooling demand, with steep losses across the Eastern Interconnect and ERCOT overpowering modest load gains across CAISO. Power sector gas burns shed a modeled 1.1 Bcf/d week-over-week. Sinking natural gas spot prices are promoting price-induced coal-to-gas fuel switching, with price-sensitive gas burns up 1.0 Bcf/d relative to the beginning of July. This week national cooling demand may edge higher—but weakness across the South Central and Southeast may linger, limiting power burn gains to 1.4 Bcf/d week-over-week. Still, heat could rebound sharply by 35% from limited weekend levels into Friday and next weekend. Looking forward, talk of an August heat wave and a tropical storm may give the market some support.

The Fox Weather channel is saying that odds increase for tropical depression or storm to form and track toward Florida, Southeast US this week. The odds of development have been slowly increasing since the weekend and currently stand at a 50-50 chance. If the system strengthens into a tropical storm, it will be named Debby – the fourth named storm of the 2024 Atlantic hurricane season. Download the Fox Weather ap to keep up on developments.

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