Cut To the Chase. The Energy Report 11/04/2024

Oil prices are surging to begin the week on increasing geopolitical risk and the fact that OPEC is delaying its planned production increase.  In real terms the delay of a OPEC production increase really amounts to a OPEC production cut. OPEC cheaters are making good on pledges to cut production to compensate for over production.

OPEC put out a press release that they would wait yet another month before beginning to unwind 2.2 million barrels a day in production cuts. Yet this comes after the Iraqi Ministry of Oil said on Friday that Iraq has reduced its oil production to 3.3 million barrels per day in line with its commitment to the OPEC+ agreement. Oil production in Iraq during September reached 3.94 million barrels per day, less than the country’s OPEC+ output limit of almost four million barrels per day. Kazakhstan’s average daily oil output in October was down 20% from September, two sources familiar with the data said on Friday, complying with the country’s OPEC+ quota, according to Reuters calculations, another sign that cheaters are cutting.

Yet this news comes as Iran won’t go quietly. Hedge funds that bet that the conflict between Iran and Israel on being over will have to recalibrate those bets. An exclusive from the Wall Street Journal reported that, “Iran Tells Region ‘Strong and Complex’ Attack Coming on Israel! Tehran has warned diplomats that it is planning to use more powerful warheads and other weapons!

Hedge funds have suggested that they have been selling oil into the election. That trade may change after the election. Hedge funds taking on massive, short positions may become more dangerous, especially after last week’s data that shows US Petroleum demand at near record breaking 21,689 million barrels a day.

Also, there’s talk about more stimulus in the Chinese economy which means that the dip in Chinese oil demand should start to recover. We’re also seeing incredible growth in Indian oil demand. India of course is going to be the main driver of demand growth on the planet.

Bottom line is it’s getting more dangerous to be short. The US sent some B52 bombers to the Middle East to send a strong message Israel will continue to defend itself if Iran makes the mistake of attacking Israel. There should be an attack on targets that were previously left alone. Oil infrastructure could be a big part of that. Israel has suggested they would wait to see the outcome of the election before making any final decisions. Read that whatever way you want.

Natural gas is desperately seeking winter. The lack of any heating degree days in November’s is putting downward pressure on natural gas even though the outlook for natural gas demand over the next few years looks wildly bullish. In the short term we really need winter to bail out the prolific production that we’ve seen from the United States.

Although we do have a tropical storm development that we may have to keep an eye on for the natural gas market. Fox Weather is reporting that, “Potential Tropical Cyclone 18 to strengthen into Hurricane Rafael as Caribbean braces for strong wind, rain. We may have entered the final month of the 2024 Atlantic hurricane season, but the tropics are showing no signs of cooling down after the National Hurricane Center designated an area of disturbed weather in the Caribbean Sea as Potential Tropical Cyclone Eighteen. Forecasters believe the tropical disturbance could likely develop into Hurricane Rafael in the coming days.

“The disturbance is expected to become a tropical storm (Monday) and pass near Jamaica (Monday night) and Tuesday, where a Tropical Storm Warning is in effect,” the NHC said. “The system is forecast to become a hurricane by Tuesday night and there is a risk of dangerous impacts from hurricane-force winds and storm surge in the Cayman Islands and portions for western Cuba.”

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