Lean Forward. The Energy Report 08/09/2024

Hedge funds in energy are probably leaning the wrong way after the feared stock market crash may only be a healthy correction. Despite fears of subdued demand, global oil inventories are tightening.

While it appears that Iran backed down from a direct attack on Israel as the regime weighed the real possibility of being totally annihilated, they still have their minions, the Houthi rebels, attack another ship.

And in Libya a shutdown of its largest oil field should help give oil support. The hedge funds, despite their best efforts, failed to take out the $70 a barrel handle and with the seasonal tendency for both gasoline and diesel to bottom on in mid- August, the hedge funds may have to run for cover.

Iran must believe that when you face annihilation it’s probably a good time to think about compromising. Bloomberg News reports that, “Iran’s president told his French counterpart Emmanuel Macron the US and Europe must urge Israel to accept a truce in Gaza to reduce tensions in the Middle East. Masoud Pezeshkian’s comments on a call with Macron on Wednesday hint at a diplomatic path to de-escalation as Israel braces for retaliation after the killing of a top Hamas leader in Tehran.”

Reuters is reporting that, “The Delta Blue crude oil tanker reported a third and fourth incident in the last 24 hours off Yemen’s port of Mokha, the United Kingdom Maritime Trade Operations (UKMTO) agency said on Friday. The crew and vessel are safe and proceeding to their next port of call, the UKMTO said in an advisory note. The latest incidents included an attack by an uncrewed surface vessel and another by a missile that landed near the ship, UKMTO said. On Thursday, the ship’s captain reported that two small craft had approached and fired a rocket-propelled grenade which exploded near the Liberia-flagged Delta Blue some 45 nautical miles south of Mokha. Each of the two small boats had four people on board, UKMTO said.

The renewed push by the Biden administration to restart talks between Israel and Hamas probably will not bear fruit. Hedge funds of course have jumped on every ceasefire talk deadline to push oil prices lower.

At some point they may realize that the ceasefire talks are not a reason to sell more oil.

Hamas knows that if they give up their hostages, they’re probably going be wiped off the face of the earth. Hamas has no respect for human life, not even their own and they will use humans as shields as they are their only means of survival.

Libya’s oil that had surprisingly has been flowing consistently over the last couple of months, has once again shut due to political upheaval. The Libyan National Oil Corporation declared a force majeure with a shutdown the Shahara oil field. According to reports the oil field, which does have the capacity to produce 300,000 barrels a day, is offline for a while and that should further tighten global supplies of light oil.

That should also boost exports of U.S. oil as they look for a replacement for Libyan oil. That should increase the odds of continuing drains on US crude supplies and should also start to support products as we said in August traditionally, we see a little bit of a bump up in prices as we get closer to winter.

According to the Moore Commodity Research center for the December contract our RBOB gasoline has gone up between August 14th and August 29th 13 out of the last 15 years. And for diesel between August 15th and August 29th it has gone up 14 out of the last 15 years.

The market being oversold because of the stock market sell off concerns, both diesel and gasoline futures are ready for a comeback. This is especially as demand rebounds after we start to see a recovery after Hurricane Debbie. 

Natural gas is still trying to stand tall as production cut back and record natural gas power burns area easing the natural gas supply glut fears. Yesterday we saw a supportive report from the Energy Information Administration (EIA) that beat expectations on a weekly basis.  The EIA said that working gas in storage was 3,270 Bcf as of Friday, August 2, 2024, according to EIA estimates. This represents a net increase of 21 Bcf from the previous week. Stocks were 248 Bcf higher than last year at this time and 424 Bcf above the five-year average of 2,846 Bcf. At 3,270 Bcf, total working gas is within the five-year historical range.

John Kemp at Reuters said natural gas inventories are slowly normalizing as ultra-low prices encourage high levels of gas-fired generation during the peak summer air conditioning period. Inventories accumulated by just +71 billion cubic feet (bcf) over the four weeks ending on August 2, the smallest seasonal increase for more than 14 years in data going back to 2010. Stocks were still +441 bcf (+16% or +1.35 standard deviations) above the prior ten-year average but the surplus had narrowed from +538 bcf (+20% or +1.44 standard deviations) four weeks earlier.

You better stay tuned to the Fox Business Network because they’re the only ones in America that are invested in you!

Yes, you can still sign up for the Phil Flynn Daily Trade Levels and the new Manic Metals report by calling Phil Flynn at 888-264-5665 or you can e-mail me at plynn@pricegroup.com.