Garbage Pickup. The Energy Report 10/30/2024

Global markets are increasingly pricing in a President Trump reelection after Joe Biden said that, ‘the only garbage I see floating out there is his [Trump} supporters.” That was Biden’s comment about a joke told by a comedian about Puerto Rico at a Trump rally that Trump had never heard of. Of course, a campaign must be pretty desperate to try to make an issue about a joke from a third-rate comedian while ignoring the turmoil from open borders, war and inflation that will be most remembered about the Biden administration by honest historians and men and woman of reason and truth.

We have seen the Nasdaq hit record highs and green energy stocks are on guard as Bitcoin hits record highs pricing in a pro crypto and artificial intelligence friendly Trump Administration. Gold also is hitting record highs as central banks continue strong buying and worries about how the deep state Democrats will react to a win or a possible disputed election.

Oil markets are also pricing in the growing possibility of a new era of ‘drill baby drill’ policy but needs to balance that with a global market that continues to be tight and getting tighter according to the American Petroleum Institute. The API shows crude supplies down 573,000 barrels and gasoline supplies down 282,00 barrels and diesel down 1,43 million barrels. That is despite some misgiving reported by J P Morgan that questions global data suggesting that global inventories are hovering near 10-year lows for this time of year. JP Morgan is suggesting that global inventories have underreported them by roughly 45 million barrels globally.

The FT reported that, “JPM commodities strategists Natasha Kaneva, Prateek Kedia and Cole Wolf back in June, the JPM trio said they expected global demand for oil liquids to exceed supply by about 1 million barrels per day, “with a sizable 1.9mbd deficit in August followed by a 0.3mbd deficit in September”. These forecasts were eventually “validated,” the analysts said – observable inventories fell by 117mn barrels globally during the summer months, and particularly quickly in August.

But it turns out the market may be far, far looser than JPM had initially thought. “With the incorporation of new data,” the analysts now think the third-quarter deficit was around 0.5mbd (rather than 1mbd), 0.9mbd in August (rather than 1.9mbd) and that the market turned to a 0.3mbd surplus in September (rather than a 0.3mbd deficit as previously forecast). That means there were roughly 45mn extra barrels around between June and September.”

Not only does the oil trade have to worry about reporting data or biased reporting agencies like the International Energy Agency, they also have to deal with war premium in the price of oil, something you didn’t need to talk about under a Trump Presidency because under Trump we had no new major wars.

The assumption is that after Israel made mincemeat out of Iran’s air defenses and now is openly taunting the next leader of HAMAS that he won’t last too long, the assumption is that Iran’s oil infrastructure is now safe, and Israel will allow them to make billions of dollars selling oil so they can rebuild its terror network. Yet that may be an incorrect assumption. Yesterday the Israeli chief of staff said if Iran makes some mistakes and fires missiles towards Israel, we will strike hard at capabilities and locations that we excluded during the previous strike. While there are reports like one from Bloomberg that states, “Israel is considering a deal to end the conflict with Hezbollah in Lebanon that would see the militant group’s fighters move away from the Israeli border, after assessing its rocket arsenal has been mostly expended or destroyed.” And another from Bloomberg that said, “The war with Hezbollah will likely be over by the end of December, Israeli Finance Minister Bezalel  Smotrich says in a press briefing on Tuesday regarding the 2025 budget. In terms of the budget, 2025 will be a year of “exiting the war”. They are reports today that they are also going to hit Lebanon and Hamas hard today and warning civilians to seek safety.

So well should slowly start pricing back in some more premium and if they believe the actual data, they should be pricing in a very tight market as we head into winter. And while global inventory data might be over reporting supply and underreporting demand, the reality is that’s not a chance you want to take going into winter. Because of the uncertain market action, I’m assuming that OPEC plus will back off on their production increase and if that’s the case and the other global data is somewhat correct, we could run into a situation where we see one of the biggest supply deficits versus what we’ve seen in many years. Late  breaking O EC+ could delay planned oil output hike scheduled for December by one month or more – OPEC+ sources.

I guess we must trade the data that we get, not the data we think is correct. Which leads me to the conclusion that the price of oil seems to be weighed down quite heavily by the upcoming presidential election and even with the possibility that Donald Trump is going to drill a lot of oil. My assumption is that oil will rally who is ever elected at least initially.

My good friend Anas Alhajji pointing out another failure of the Biden administration. That failure is the assumption that they can spend a lot of money and force people to drive electric cars. t also points out the failure to create those ‘green energy” jobs. Anas Alhajji wrote that, “Word that Volkswagen could close three vehicle factories, cut 10,000 jobs and impose steep across-the-board pay reductions is a warning for Americans about the peril of Biden-Harris climate policy.” So I guess those green energy jobs are going in reverse. Now how many energy jobs in oil in gas were lost to Biden Harris policies and drilling moratoriums, LNG delays, etc.?

Natural gas is starting to feel the weight of shale production exceeding record demand. JODI is reporting that global natural gas inventories rose by 11.9 bcm in August, to 242.8 bcm settling a new historical high.
Yet in Europe prices are rising on cold weather hitting the highest level of the year. Without a steady stream of Russian supply, Europe can get in trouble because of the limited ability to import enough LNG. So far Europe has been bailed out by Mother Nature. Will she come through again with another warm winter?

EBW Analytics though is still long term bearish for US Henry Hub Prices. EBE wrote that, “Natural gas attempted to rally last week-and imploded anew early this week as oil’s collapse led to a widespread sell-off across the energy complex. Still, if December can sustain support above recent lows at $2.765, growing daily demand, chances for a slow initial uptick in November supply gains, and opportunities for a mild weather outlook to shift may offer bullish chances. The medium-term outlook for natural gas will be determined by (i) the extent of supply gains into mid-December and () winter weather. In our view, the most-likely scenario leans bearish with risks for production to surprise to the upside.

Longer term, a bearish EIA storage trajectory appears on a pathway for north of 2,100 Bcf in end-of-March storage. Winter weather and production remain subject to wide uncertainty-but price weakness appears probable into 1H25according to EBW.

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Call Phil Flynn at 888-264-5665 email me pflynn@pricegroup.com.