Comply And Repent. The Energy Report 08/30/2024

I have said many times that this is not your daddy’s OPEC. Oil prices have another reason not to break out to the downside of the lower trading range as OPEC scofflaw Iraq has seen the errors of their ways.

Iraq is repenting and making amends by announcing compensation cuts for previous offenses against the OPEC quota. And it is not just lip service but an announcement that that had cancelled a 1.0-million-barrel spot crude sale but will also defer two other 1.0 million barrels sales. In fact, S&P Global reported that, “statement posted on OPEC’s website recently revealed that the OPEC Secretariat had received “updated compensation plans from Iraq and Kazakhstan for their overproduced volumes for the first seven months of 2024”. These overproduced volumes totaled around 1.440 million barrels per day for Iraq and 699,000 barrels per day for Kazakhstan, “according to assessments made by the independent sources approved in the Declaration of Cooperation”, the statement outlined. The statement highlighted that the “entire overproduced volumes will be fully compensated for by September 2025”.

A statement posted on OPEC’s website last month revealed that the OPEC Secretariat received compensation plans from Iraq, Kazakhstan, and the Russian Federation “for their overproduced volumes for the first six months of 2024”. So, worry about OPEC tapering off production cuts should be offset by OPEC cheaters repentance.

Vice President Kamla Harris also repented against her call for a fracking ban that she called for back when she first ran for President but had to bow out because hardly anyone voted for her. Now that she is the Democrat Nominee for President with hardly anyone voting for her, she now says in her first sit down edited CNN interview that she made it clear that she would not ban fracking.  She seemed to suggest that you should not listen to what she says, and you should ignore the fact that she was the sponsor of the ‘Green New Deal” that she really did not mean this stuff. When she said she would ban fracking on her first day as President and somehow you should be clear on how she felt, even though she never said that.

In fact, she pointed out that as Vice President she did not ban fracking. That is a bold statement considering that a Vice President does not have the authority to ban fracking in the first place. As President she could, like her current boss, offer a range of executive orders, like drilling moratorium, banning drilling on Federal lands ,and reverse all of Trump’s border policies and open the borders, but why would you think she would repeat the short sighted and dangerous policies? Just because she said her values have not changed, it does not mean she has the integrity to stand up for those values as her policies that she is touting do not seem to match her values. Unless her values are elected at any cost then it might make sense.

Oil prices are also trying to put the Libyan oil dispute in perspective even as the loss of Libyan barrels will become increasing more difficult to replace. As of yesterday, Libyan oil production was down 700,000 barrels of light crude per day. The market is hoping that the loss oil revenue to both of Libya’s political factions will bring a swift resolution to the political standoff but if not, get ready for a Labor Day price spike.  Reuters reported that, “the move to shut off Libya’s main source of revenue comes in response to the Tripoli-based Presidency Council sacking Central Bank of Libya (CBL) chief Sadiq al-Kabir, prompting rival armed factions to mobilize. Prime Minister Abdulhamid al-Dbeibah, installed through a U.N.-backed process in 2021 and head of the Tripoli-based Government of National Unity, said this week that oilfields should not be allowed to be shut “under flimsy pretexts”.

On Tuesday, U.S. Africa Command General Michael Langley and Chargé d’Affaires Jeremy Berndt met Khalifa Haftar, the head of a force called the Libyan National Army that controls the country’s east and south.

Strong demand and the upcoming winter seem to turn the crack spreads around after its recent plummet. Refiners continue to refine oil at a breakneck pace and there’s an assumption that the crack spreads are still fat enough to keep the refiners occupied.

All of these stories should have oil testing the upper end of its trading range soon. We still believe with the supply situation tightening dramatically because oil supplies have fallen seven out of the last eight weeks, that we could see a major upside breakout in the very near future and while we may fail again in the $80.00 handle be prepared for an even higher move if we don’t see a quick resolution to the Libyan political oil crisis.

Natural gas prices have pulled back as the shoulders season approaches. As we get into the heart of the hurricane season the market is looking at the Atlantic and the potential to add a couple of storms that may or may not turn out to be an issue next week.

Yesterday the Energy Information Administration said that w working gas in storage was 3,334 Bcf as of Friday, August 23, 2024, according to EIA estimates. This represents a net increase of 35 Bcf from the previous week. Stocks were 228 Bcf higher than last year at this time and 361 Bcf above the five-year average of 2,973 Bcf. At 3,334 Bcf, total working gas is within the five-year historical range.

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