Inventories Matter. The Energy Report 08/12/2024

 Oil inventories matter when the risks to supply are high as we head into a world of a supply deficit. Oil prices are rising on geopolitical risk and falling inventories even as OPEC cuts 2024 global oil demand growth forecast to 2.11 million barrels a day. That is down from the previous forecast of growth of 2.25 million barrels a day. OPEC also cut their 2025 global oil demand forecast to 1.78 million barrels a day from a previous forecast of 1.85. This comes as OPEC production has been creeping higher as OPEC decides to tapered off its cut.

Saudi Arabia increase their production by 97,000 barrels a day in July to back over 9 million barrels a day. Iran, despite alleged sanctions on the country, saw their production rise again to 20,000 barrels a day to 3.27 million barrels a day. That of course we’ll bring in plenty of cash for Iran to continue to fund Hamas Hezbollah and other bad actors. Of course, it’s been the policy of easing that put pressure on Iran that has caused the world to be a more dangerous place in a lot of respects. The US is having to get more involved because of the Biden administration by its lax Iranian policy.

The Wall Street Journal reports that, “the U.S. is sending a guided-missile submarine to the Middle East and is speeding up the arrival of an additional aircraft carrier as the region braces for a possible Iranian response to the killing of Hamas’s political leader in Tehran.  U.S. Defense Secretary Lloyd Austin told his Israeli counterpart Yoav Gallant by phone Sunday that the deployments strengthen the U.S. military posture in the Middle East considering recent tensions and reflect a “commitment to take every possible step to defend Israel.”

The oil markets reacted strongly to the increased geopolitical risk even as OPEC has shown some concern about its demand growth. Regardless of the demand growth numbers that they are giving us it still leads us into a supply deficit. At the end of the day falling inventories will matter.

OPEC is tapering off cuts but more than likely will extend their production cut and that should keep a floor under oil. Other countries are promising more compensation cuts in the future and that should give the market underlines support.

The other war that we must worry about is Russia Ukraine that has moved into some Russian territory and is raising the stakes of further escalation. Reuters reported that, “President Volodymyr Zelenskiy said Ukraine had launched an incursion into Russian territory to “restore justice” and pressure Moscow’s forces, in his first acknowledgement of Kyiv’s surprise offensive into the western Kursk region. Moscow’s forces on Sunday were in their sixth day of intense battle against Kyiv’s largest incursion into Russian territory since the start of the war, which left southwestern parts of Russia vulnerable before reinforcement started arriving.

Still the war has done little to hurt Russia’s oil and gas revenues which continue to rise. The Biden administration seems to not understand how to shut this revenue off and t’s because they don’t want to.

The oil market is making a nice move and technically should have a test of $80.00 soon,  $78 short term is some resistance but with the expectations that we should see another drawdown in crude oil inventory this week should keep the market on the upward track. We are looking for crude oil supplies to be down to a million barrels this week. We are also looking for products to be down to a million barrels apiece that goes both for gasoline and distillate inventories. Refinery runs be down 0.5.

The natural gas market is bouncing back on an incredible short covering rally. Expectations that we will see an inventory withdrawal this week is fueling the rally along with the fact of expectations of LNG exports rising. Some producers pledge to cut back production and that is giving the market some support.

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Call Phil Flynn to open your futures trading account 888-264-5665 or e-mail me at pflynn@pricegroup.com.