Cease Fire and The Fed. The Energy Report 12/17/2024

Oil failed for the second time as it attempted to take out the 100-day moving average and has fallen back into a new tight trading range.

The reason for the failure seems to be the fact that Israel is talking about potential progress regarding a ceasefire in the Gaza Strip. At the same time, the market is also taking a pause ahead of the Federal Reserve decision on interest rates coming up on Wednesday.

Weak economic data in China also sort of weighed on sentiment. And we saw more reports that India’s demand seems to be picking up where China is leaving off. John Kemp Energy reports that DIA’s petroleum consumption increased by 3.5% in the first eleven months of 2024 compared with the same period in 2023. Bloomberg reports that Chinese leaders plan to set an annual growth goal of about 5% for next year and raise the budget deficit to 4% of gross domestic product.

The report comes days after top leaders including President Xi Jinping wrapped a yearly economic conference in Beijing, where they were expected to set goals for 2025. Specific targets will only be officially announced at a parliamentary huddle in March, if the leadership sticks to precedent. The growth rate is underwhelming for China from historical standards but at the same time, to achieve that rate consistently China is going to have to do a lot more on the stimulus front.

Reuters is reporting that a top Russian general accused by Ukraine of being responsible for the use of chemical weapons against Ukrainian troops was assassinated in Moscow by Ukraine’s SBU intelligence service in the most high-profile killing of its kind.

This comes a day after President Trump said that Ukrainian President Zelensky should take a deal from Russia to stop the war. So after it failed to breakout, crude oil looks technically vulnerable so we’re going to need to see some signs of stability for the market to launch into the higher 70s.

Petroleum inventories should show decent drawdowns across the board. I have them pegged as falling about 2,000,000 barrels in both crude oil gasoline and distillates.

And keep in mind the official start of dwindling volume going into the Christmas holiday week could start after the Fed meeting tomorrow. A lot of people will react to the Fed and start to pack up the sleigh and sled into the New Year. Of course, that doesn’t mean that the oil market won’t move. In fact when we get close to these major holidays there are tendencies to make some major move either to the upside or the downside. So, make sure you’re protected before you leave for the holiday.

Natural gas has been moving. We’re getting a little bit of a pop on natural gas today after yesterday’s sell off which really has been driven by weather and production. The larger issue of course has been the prolific nature of US natural gas production which has been keeping prices low. But for producers that have been struggling, there are some signs of hope.

Javier Blass at Bloomberg reports that, “the Permian region is enjoying the highest monthly gas price (Waha) in ~2 years. Month-to-date is ~$2.5 per MMMBtu, a level unheard of since Dec 2022. The reason is the opening of the Matterhorn gas pipeline. Higher gas prices typically mean higher oil output.

Oil Slick Fox Weather reported that, “A heavy storm Sunday damaged two Russian tankers carrying thousands of barrels of oil and caused an unknown amount to spill into the sea, according to reports from Reuters. Video taken from the command bridge of one of the ships shows part of one vessel sinking in the Kerch Strait, which is between Russia and the annexed territory of Crimea. According to Russian state media sources cited by Reuters, the two tankers were carrying some 62,000 barrels of oil. Russian officials said they are still trying to determine exactly how much oil has spilled. Reuters reported that Russia’s emergency ministry said one crew member was killed and 25 others were rescued. Kremlin officials said the government is working to mitigate the impact of the spill, according to state news agencies cited by Reuters.

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