Oil In Peaces. The Energy Report 08/16/2024

Global oil markets are getting sucked into the belief that somehow this time peace talks between Hamas and Israel may have a different outcome. The crude oil market also seems to be dropping more after a recession warning from Chicago Fed President Austan Goolsbee. He said that there were some leading indications of a recession and that when the labor market starts to turn, it tends to worsen fast. The weakness in oil comes even as the Asian stock market rebounds in a big way on optimism about the US economy and a potential stabilization of the Chinese economy. US stocks are on a tear as the unwinding of the yen carry trade seems to be over and reversing in the other direction and confidence is being restored. The market is also sensing that the likelihood of an attack on Israel by Iran is less likely not only because of the peace talks going on but the growing sense that Iran is afraid to take that step and get involved in the wider conflict.

The oil market is buying into the thought that global demand growth might not be as strong as some people had originally thought. That is even though almost every major oil reporting agency shows that we’re in a supply deficit. In other words, global demand is exceeding global production which will equal a drawdown in global oil inventories. It’s either right about the slowdown in demand or could be a case of vain complacency. The fade on peace hopes probably will fade away. Concerns about a slowing economy and whether the economy is going to get into a soft-landing situation is ongoing.

The US debt continues to be a problem and with presumptive democratic nominee Kamala Harris talking about price controls. This could make commodity traders very rich and we would start to see shortages of commodities.

In the meantime, the US debt continued to be a problem. With soaring U.S. debt levels, we need other countries to continue to buy our bonds to fund our out of control spending ways. There is some concern that with the economic problems with China and their desire to separate themselves from the US economy and become more independent, that we would run out of people to buy our bonds and keep funding that debt. Yet Its Saudi Arabia to the rescue.

The country that the Biden administration vowed to make a pariah state it helping us stay afloat while earning a decent interest rate paid for by the US taxpayer. Bloomberg News reported Saudi Arabia added $4 billion to its US Treasury holdings by the end of June, taking its stockpile to the highest level since the pandemic in 2020. The amount stood at just over $140 billion at the end of the first half of the year, according to the latest figures from the Treasury Department. Other top US government debt holders include China, the UK and France, also increased holdings in the world’s safest asset.

This diesel crack spread tried to find support, but the gasoline crack is still very weak seasonally hitting the lowest level since December of 2021. Seasonally we should see products start to bottom and we should get a bit of a run unless the market is convinced we’re going into a recession. We are ‘re looking for signs at the crack spreads might turn and that could be a sign that the overall complex has hit the bottom.

Overall, with the inventories being below average and demand expectations falling it’s keeping the market under wraps. But if demand exceeds the pessimism, you better watch out and get ready for a price spike.

Gavin Newsom of California is still floundering trying to mislead about his state electricity costs and plans to lower prices in the future. Industry experts were laughing at Gavin Newsome tried to say that electricity price was cheaper than other states and now scatching their head as the governor tries to figure out a way to keep gasoline prices in California under control. That is even as his policies are one of the reasons gasoline prices have spiked. Not only did he drive out long term resident Chevron to another state, the talk about the State of California taking over the refinery industry has people in the industry cringing and laughing at the same time.

Even though Governor Gavin Newsom wants to force everybody in California to buy electric cars, at the same time he seems to suggest that gasoline powered cars are going to continue to be around. Reuters is reporting that California Governor Gavin Newsom proposed a plan on Thursday requiring oil refiners to maintain minimum reserves of gasoline to prevent price spikes. The California Energy Commission said that on 63 days last year California refiners maintained less than 15 days of supply of gasoline, a situation that it said spiked prices and cost drivers $650 million. “Price spikes at the pump are profit spikes for Big Oil. Refiners should be required to plan and backfill supplies to keep prices stable, instead of playing games to earn even more profits,” Newsom, a Democrat, said in a release.

Natural gas sting of bigger than expect drawdowns continued. Natural-gas managed to only briefly see prices rise to the highest intraday level since mid-July after data from the Energy Information Administration revealed an unexpected weekly decline of 6 billion cubic feet in U.S. supplies of the fuel for the week ended Aug. 9. The market had expected the EIA to report a supply build of 3 bcf, versus a build of 35 bcf for the same week last year and a five-year average build of 42 bcf, said Robert Yawger, director of energy futures at Mizuho Securities USA, in a note released ahead of the storage data. He had said that if the EIA reported a weekly decline, that would mark the “first summer storage draw” since the draw of 6 bcf reported by the EIA on July 29, 2016.

A supply draw is “rare” for this time of year as the market usually sees supplies build as soon as weather starts to cool down in August, Phil Flynn, senior market analyst at The Price Futures Group told MarketWatch. Natural-gas demand has been, “through the roof and producers are showing some signs of restraint — and that’s giving the market hope for a bit of a turnaround.” September natural gas traded as high as $2.301 per million British thermal units on the New York Mercantile Exchange, before settling at $2.20, down 1% for the session.

Oil prices, meanwhile, finished higher as the risk of disruptions to the flow of crude in the Middle East remained high on the back of ongoing tensions between Iran and Israel. September West Texas Intermediate crude rose $1.18, or 1.5%, to settle at $78.16 a barrel, while October Brent crude added $1.28, or 1.6%, to end at $81.04 on ICE Futures Europe.

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