Freaked Out Economics. The Energy Report 09/09/2024

One, two, ah, freak out! Le freak, c’est chic. Freak out! Ah, freak out! Petroleum markets freaked out and plunged on Friday after a pathetic job report that showed more evidence of the failure of Bidenomics causing a panicked risk off selloff. You’ll see us headed towards a deep recession and it’s hard to know because the Bureau Of Labor statistics has misreported the data for months.

The US only added only 142,000 jobs in August after employment gains for June and July were revised down sharply. The reports showed that native born Americans were losing jobs to non-native born Americans. Fox Business reported, “The devil hiding in the details, however, involved statistics pertaining to native-born American workers that one expert called “absolutely stunning. In short, native-born workers have experienced a net job loss of 1.3 million since August 2023. Meanwhile, foreign-born workers have seen an increase in employment.

China’s economy is also struggling but they are still buying oil. Bloomberg News points out that, “Chinese stocks are on the brink of falling to a five-year low seen in February as bearish sentiment grips the market amid a lack of earnings and economic recovery. The CSI 300 Index closed down 1.2% on Monday, taking its slide from this year’s high in May to more than 13%. A further decline would take the benchmark to levels unseen since early 2019, suggesting years of policy efforts to revive the economy and prop up share prices have proved futile. The yuan weakened.”

Yet China still is accumulating oil. Chinese refiners are reportedly purchasing approximately 16 million barrels of oil monthly to refill the nation’s Strategic Petroleum Reserve, taking advantage of the current low oil prices, according to Bloomberg’s insights from Energy Aspects.

Saudi Arabia cut oil prices to keep market share, raising fears of a slowdown in oil demand and the global economy. Now oil tries to bounce back as crude oil inventories continue to tighten and geopolitical risk factors heat up. 

Storms in the Atlantic have a high probability of causing at least some problems for oil transport and offshore production as Fox Weather is saying that the potential tropical cyclone six could bring impact along the Gulf Coast of Mexico upper Texas and Louisiana coast in the next few days. That is right in the heart of the US oil and gas production, transport and refining.

Fox Weather says that, “A tropical disturbance in the Gulf of Mexico dubbed Potential Tropical Cyclone Six has millions along the Texas and Louisiana Gulf coasts on alert as the system is likely to develop into a hurricane this week as the peak of hurricane season approaches. The National Hurricane Center (NHC) designated the tropical disturbance as a potential tropical cyclone, a designation that allows the NHC to issue routine advisories on a system that has not yet developed into a tropical depression or tropical storm but brings a threat of 39-plus-mph winds to land within 48 hours. Download the Fox Weather ap to keep up with the latest.

Of course, if you look at US oil inventories you would think the economy is booming. John Kemp reported that U.S. crude oil inventories around the NYMEX delivery point at Cushing have tightened significantly since the end of June. Stocks have declined in eight of the most recent nine weeks by a total of -8 million barrels since June 28. Inventories were -14 million barrels (-35% or -0.92 standard deviations) below the prior ten-year seasonal average on August 30 and the deficit had widened from -9 million barrels (-21% or -0.60 standard deviations) nine weeks earlier.

The reality is if you look at the price of oil based on supply and demand, we are undervalued obviously because of the technical mood. We cannot rule out further weakness but the disconnect between the prices and the supply side cannot be ignored. Hedge funds have accumulated their biggest short position in the history of the global oil market and the last time they were this heavily short it was pretty close to the low for the year last year. This bearishness shows that the economy and the current supply deficit could cause the market to reverse sharply to the upside so don’t get too comfortable being short.

Natural gas also will keep an eye on the storm as many natural gas platforms will have to ride this thing out. Obviously the question is how strong this storm will get. More than likely there won’t be any lasting damage based off the reports that we’re seeing from Fox Weather channel but that could change. There are other storms in the Atlantic behind this one so get ready for some rock’n’roll action.

Stay tuned to the Fox Business Network invested in you.

Make sure that you open your futures trading account with me. Call Phil Flynn at 888-264-5665 or email me at pflynn@pricegroup.com.