Just The Ticket. The Energy Report 09/11/2024

The EIA reported that ‘U.S. commercial crude oil inventories increased by 0.8 million barrels from the previous week. At 419.1 million barrels, U.S. crude oil inventories are about 4% below the five-year average for this time of year. Total motor gasoline inventories increased by 2.3 million barrels from last week and are about 1% below the five-year average for this time of year. Total commercial petroleum inventories increased by 9.0 million barrels last week. The data also showed a weekly plunge in gasoline demand that fell to 8,478 million barrels since last May. At the same time distillate fuel demand dropped, with refinery runs also declining.

The recent crash in oil prices, that is really out of touch with current supply and demand fundamentals, is raising eyebrows as to the influence of the commodity hedge funds and the price of oil. Even as the International Energy Agency warns about slowing global oil demand growth today, they must acknowledge that global observed oil stocks declined by 47.1 mb in July. The drawdown was concentrated in crude oil, NGLs and feedstocks (-75.5 mb), while oil products built to their highest level since January 2021. OECD industry stocks fell counter-seasonally by 12.3 mb in July to stand 78.5 mb below the five-year average. Preliminary data show continued stock declines in August.’

Is the price of oil totally disconnected with reality or are the hedge fund signaling something more ominous? The bearish case is that we’re going into a recession. And based on the market sentiment coming out of the Labor Day break, it might be the mother of all recessions.

The other bearish case is that even though OPEC is showing great signs of compliance, non-OPEC oil production may rise to offset the discipline by the old cartel. Even though currently the world is in a supply deficit as demand for oil is at a record high and supply supplies are falling, the IEA is calling for that to reverse. The hope is that that the supply deficit will reverse and we will see production exceeds supply. That would create an oil supply deficit and potentially replenishing stocks that are pretty much below average across most of the world.

The IEA is always trying to justify its call to stop investing in today fossil fuels. The IEA reports, “Global oil demand growth continues to decelerate, with reported 1H24 gains of 800 kb/d y-o-y the lowest since 2020. The chief driver of this downturn is a rapidly slowing China, where consumption contracted y-o-y for a fourth straight month in July, by 280 kb/d. Average annual gains of 900 kb/d in 2024, compared to 2.1 mb/d last year, will take demand to almost 103 mb/d. An increase of 950 kb/d in 2025 will be equally subdued.”

Now today I guess we hope for a hot Producer Price Index to keep the recovery momentum going. Remember bullish is bearish and bearish is bullish or at least that’s how the market trades. Today a surging Nvidia stock and a rebound in the S&P late in the session also is giving the petroleum complex a boost because the stock market is doing so great perhaps a 2008 type market crash isn’t in our near future.

Even Hurricane Francine seemed to have little impact on prices as production losses add up. According to the Bureau of Safety and Environmental Enforcement (BSEE), “Approximately 39 percent of crude oil production and 49 percent of natural gas production in the Gulf of Mexico. The Bureau of Safety and Environmental Enforcement reported that oil producers operating offshore in the Gulf of Mexico had shut down around 675,000 barrels per day of crude oil production and 907 million cubic feet of natural gas output.  These figures represent nearly half of the region’s total production capacity. The shutdowns are seen as a necessary precaution to protect workers on the platforms, as well as to prevent potential environmental damage in the event of the hurricane causing equipment failures or spills according to BSEE.

Fox Weather reported that Ferocious Francine slammed Louisiana ripping roofs from buildings, trapping residents amid rising floodwaters. New Orleans reported wind gusts of 78 and 76 mph, while Dulac reported a 97-mph gust and Eugene Island experienced the highest wind gust at 105 mph. Francine has since been downgraded to a tropical depression, but the storm’s dangerous and life-threatening impacts are expected to continue well inland. Between the ferocious winds and heavy precipitation, Tropical Depression Francine is now responsible for plunging more than 400,000 utility customers in Louisiana and Mississippi in the Southeast into darkness according to Fox Weather.

To keep up with the latest on Hurricane Francine download the Fox Weather app today. Also stay tuned to the Fox Business Network for the latest breaking developments on the markets.

Make sure you sign up for the Phil Flynn Energy Report as well as the wildly popular Phil Flynn Daily Trade Levels. Also make sure you open your account today by calling me at 888-264-5665 or e-mail me at pflynn@pricegroup.com.

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