Pivot Point. The Energy Report 08/26/2024

The Fed Pivots while Israel attacks, and Libya shuts down oil production. The pieces are falling into place for a monster oil rally that could have a significant impact on the US Presidential Campaign.

Oil prices stated their move Friday after Fed Chairman Jerome Powell admitted it was time to change course and embark on a rate cutting campaign, yet geopolitical risk factors also exploded as Israel on Sunday, conducted what they called a preemptive strike over southern Lebanon to thwart an attack from the Lebanese Islamic group Hezbollah

The Wall Street Journal reported that after a heavy exchange of fire early Sunday between Israel and Iran-backed Shiite militia Hezbollah, the regional military powers signaled a desire to avoid a spiral that could lead to a wider Mideast conflict. Hezbollah launched hundreds of rockets and drones at Israel as around 100 Israeli warplanes struck targets in Lebanon in a move Israel said was intended to pre-empt a Hezbollah attack. The exchange was a significant show of force but initially appeared to result in few casualties and limited damage.
Reuters reported that “Iran does not seek to increase Middle East tensions, Foreign Minister Abbas Araqchi told his Italian counterpart Antonio Tajani, adding that its response to the killing of the Hamas chief in Tehran would be “definite and calculated”.

According to Reuters, no agreement was reached during the Gaza ceasefire talks on Sunday. The meeting, held in Cairo, saw neither Hamas nor Israel agreeing to the proposed compromises. Sunday’s strikes exemplify the failure of ceasefire negotiations and will likely lead to broader regional conflicts.

In recent weeks oil prices have downplayed geopolitical risks because there has been no major disruption of supply. That could change.

Bloomberg News is reporting that “Libya’s eastern government said it will shut down all oil production and exports, after its Tripoli-based rival moved to replace the leadership of the central bank.

The “force majeure” applies to all fields, terminals and oil facilities, the eastern authorities said Monday in a statement on Facebook. Brent crude prices jumped as much as 2.2% to above $80 a barrel.

A row over who leads the central bank, the manager of billions of dollars of energy revenue, has been brewing for over a week now, deepening political divisions and threatening a UN-brokered peace deal. The internationally acknowledged government in the country’s west has been seeking to replace the governor Sadiq Al-Kabir, who has refused to step down. A government delegation entered the regulator’s offices today to take over, according to local media.   The country produced a total of about 1.15 million barrels a day of oil last month, according to data compiled by Bloomberg. Since then, the biggest oil field called Sharara, which was pumping nearly 270,000 barrels daily, has halted. The east is home to the Sirte basin where most of Libya’s oil reserves and four of the country’s oil export terminals are located.”

So the oil market cannot any longer ignore these risks because it is taking away real barrels of oil.  Now the Fed must ignore higher oil because they were lied to about the labor markets and has fallen behind the curve. With a weak jobs market and higher oil it will be a chore to keep the landing soft.

Look to put on hedges and stayed hedged as the supply squeeze is developing.

Nat gas pulling back as we face the last heat wave of the summer. EBW Analytics reports that “The NYMEX front-month contract initially added 15.5¢/MMBtu (+7%) early last week to climb as high as $2.278 before a bearish EIA storage surprise sent prices plummeting lower to retest support at the $2.00/MMBtu psychological level intraday Friday. Natural gas may still see moderate upside into the 30-45 day window as extended supply shut-ins alleviate storage containment fears-opening the door to an eventual seasonal rally higher. Near-term, however, bearish risks are predominant into September expiry.

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