Tight Places. The Energy Report 08/28/2024

Oil inventories continue to tighten even as crack spreads crack under seasonal pressure and hopes that Libyan oil production won’t be down for too long. Sadly, summer and the summer driving season, is coming to an end.

The American Petroleum Institute (API) reported a larger than expected 3.4-million-barrel drop in crude supply, coupled with a 1.86-million-barrel drop in gasoline supply and a 1.4-million-barrel drop in distillate.

Now one might think that the market would be concerned about the rapid tightening of oil supply, but the trade keeps pushing the short side betting that supplies will be adequate even if the line between supply and demand is razor thin and could flip into a major deficit if Libya’s oil supply stays off-line. Bloomberg reports that Libya’s oil output has almost halved this week as fields reduce operations amid a stalemate over who controls the country’s central bank. Output has fallen at least 400,000 barrels a day since eastern authorities ordered a shutdown of all production, according to people with knowledge of the situation. Cuts include at Sarir, operated by Arabian Gulf Oil Co., which was producing 145,000 barrels a day and has now shut down. Oil supplying the Ras Lanuf terminal has also dropped by at least 130,000 barrels a day.

The move to freeze all output and exports announced Monday by the eastern Libyan authorities came in response to a decision by the internationally recognized government in the west to replace central bank Governor Sadiq Al-Kabir according to Bloomberg.

While the democrat nominee for president seems to be for price controls and subsides, Iran’s president seems to be against it. Reuters reported that President Masoud Pezeshkian said in a video published on Tuesday that fuel subsidies made no sense in Iran, a major oil producer with a struggling economy that has faced protests in the past over price hikes. “There is no rationality in the fact that we buy gasoline with free market dollar prices, and we sell it with a subsidized price,” Pezeshkian, elected in July, said in a video broadcast by state media. Maybe Kamala will adopt that policy the same way she seems to be adopting President Trumps policies.

It also being reported that Iran’s supreme leader, Ayatollah Ali Khamenei, stated on Tuesday that there is no harm in engaging with its enemy, referring to the United States and issues related to Iran’s nuclear program. Obviously, he wants to try to cut a deal just in case President Donald Trump returns with his maximum pressure campaign.

And while the market goes up and down, the reality is it seems like crude is stuck in a trading range with 70 on the low end and the 80 on the high end. Product crack spread seems to suggest plummeting demand so it will be very important to keep an eye on the demand numbers when we get today’s Energy Information Administration report at 9:30a.

Meanwhile Reuters is reporting that, “A Ukraine drone attack sparked a fire at an oil depot in the Kamensky district of Russia’s southern region of Rostov, its governor said on Wednesday, confirming media reports that several tanks were on fire.”

Gas markets are already looking ahead to winter. The heat wave is going to give into shoulder season. In Europe there’s still concerns about tight supplies if we get a cold winter one of the key things to remember for natural gas in Europe is that we haven’t had a real challenging winter and that has kept the market somewhat well supplied. Yet as the tensions between Russia and Ukraine continue, the possibility of a fuel shortage in Russia is still real. Of course the market price does not care until it happens.

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