Peace In Pieces. The Energy Report 02/12/2025

Oil prices almost had a clear upside breakout missing it by 1 cent ahead of the American Petroleum Institute (API) report that is probably the reason it did not happen. The API had a historic 9.043-million-barrel supply increase as oil exporters are trying to export as much oil as they can ahead of another Trump oil sanction deadline.

That surge in supply is cooling off prices that had been rallying on strong demand, good OPEC compliance and geo-political risk factors like President Trumps zero tolerance being enforced on Iranian oil exports   and worries that the Hamas-Israel ceasefire might end as prisoners that have been released by Hamas have been starved and tortured. President Trump has been disgusted by their treatment and warned that, “all hell is going to break out” if Hamas does not release “all” the remaining hostages this week. Israeli Prime Minter Benjamin Netanyahu said the ceasefire will not end if Hamas does not return all of the hostages by Saturday.

On the Russian front there was great news not only about the war in Ukraine but because President Trump secured the release of a US citizen being held in a Russian prison. President Trump welcomed home American schoolteacher Marc Fogel and said that Russian President Vladimir Putin had got “not much” in return. That is a stark difference from the deals made under the Biden administration. And we may even get peace in pieces with the war in Ukraine.

Ukraine’s President Zelensky says that the Ukraine is prepared to offer a territory swap with Russia. Ukraine will offer to swap territory with Russia in any potential peace negotiations to end the war. They may swap one territory for another adding he would offer Moscow territory the Ukraine seized in the Russian region. Zelensky, in an interview with The Guardian, said he planned to offer Russia control of Kursk in exchange for Ukrainian territory under Russian occupation. “We will swap one territory for another,” Zelensky said.

As I said, the oil inventories were overwhelming. The increase of 9.043 million in crude oil supplies is likely a historic build for this time of year. And that came as Cushing, OK crude supplies were up 407,000 barrels. Gasoline inventories did fall by 2.507 million barrels, which is a pretty impressive drop, but distillate inventories were just down 590,000 barrels.

US Energy Secretary Chris Wright is focused on the long-term future, addressing the impact of the Biden administration’s green energy initiatives. He proposed stopping coal plant closures, likely provoking environmentalists.

Bloomberg News reported that the United States should halt the closure of coal-fired power plants. Energy Secretary Chris Wright stated that this fuel source would remain crucial to the nation’s power system for decades to come. “We are on a path to continually shrink the electricity we generate from coal,” Wright said Tuesday on Bloomberg Television. “That has made electricity more expensive and our grid less stable.” Wright’s remarks come as demand for electricity is surging to feed power-thirsty data centers needed for artificial intelligence, new factories and the overall electrification of the economy. Also because Wright has an energy vision that is not based on fear but reality.

The Energy Information Administration released their Short-Term Energy Outlook. They expect OPEC+ production cuts will reduce global oil inventories and keep crude oil prices near current levels through the first quarter of 2025. Gradual increases in production combined with relatively weak global oil demand growth will increase global oil inventories in the second half of 2025 through 2026, placing downward pressure on prices through the remainder of our forecast. As a result, we forecast that the Brent crude oil price will average $74 per barrel (b) in 2025 before falling to $66/b in 2026.

Global oil production. The EIA forecast global production of liquid fuels will increase by 1.9 million barrels per day (b/d) in 2025 and 1.6 million b/d in 2026 because of a combination of supply growth from countries outside of OPEC+ and the relaxation of OPEC+ production cuts. We do not anticipate that the sanctions on Russia’s oil and shipping sectors announced on January 10 will significantly affect our oil production forecast.

U.S. petroleum products consumption. EIA expects U.S. distillate fuel oil consumption to increase by 4% in 2025 and remain flat in 2026 driven by GDP growth and increased industrial activity. We expect U.S. motor gasoline consumption to remain flat in 2025 as fuel efficiency gains outpace increases in driving. In 2026, we expect continued efficiency gains and slower employment growth will reduce gasoline consumption slightly.

Natural gas prices. The Henry Hub spot price averaged $4.13 per million British thermal units (MMBtu) in January and reached a daily high of $9.86/MMBtu on January 17 ahead of a cold snap that spread across the United States, leading to above-average inventory withdrawals. We expect the spot price to rise through 2026, averaging almost $3.80/MMBtu in 2025, up 65 cents from our January 2025 Short-Term Energy Outlook, and reach nearly $4.20/MMBtu in 2026.

Electricity generation. We expect generation in the U.S. electric power sector to increase by 2% in 2025 and by 1% in 2026, after growing 3% last year, led by growth in renewable energy sources. If electricity generation grows in each of the next two years, it would mark the first three years of consecutive growth since 2005–07. The share of U.S. generation from solar grows from 5% in 2024 to 8% in 2026 because of an expected 45% increase in the amount of solar generating capacity between 2024 and 2026. Conversely, we expect the share of U.S. generation from natural gas to fall from 43% in 2024 to 39% in 2026 as natural gas prices rise. Our forecasts for increases in solar and wind generation are based on the planned generator projects reported to us in our Preliminary Monthly Electric Generator Inventory.

Macroeconomic assumptions. The macroeconomic assumptions in this month’s forecast were finalized prior to the Executive Order on February 1, 2025, that imposed a suite of tariffs on Canada, Mexico, and China and the subsequent pause on February 3 for U.S. tariffs on Canada and Mexico. The macroeconomic model we use in the STEO is based on S&P Global’s macroeconomic model, which this month assumed a 10% universal tariff and a 30% tariff on imports from China and does not reflect current policy. We will continue to monitor and will update our outlooks as policies change.

Natural gas prices are soaring this winter. Fox Weather is reporting that another winter storm is unleashing its fury across the central U.S., bringing heavy snow and ice to portions of the Plains and Midwest, forcing officials to close state offices and schools and prompting warnings to delay travel if possible. This latest round of inclement weather comes just as the mid-Atlantic and Ohio Valley clean up after a storm system brought snow and ice to those regions and days after a winter storm slammed portions of the Northeast and New England last weekend. The FOX Forecast Center is also monitoring the development of another storm system that is expected to slam dozens of states over the upcoming weekend. Download the ap to keep up with the latest.

BP once was known as “beyond petroleum” as they thought that they should diversify into alternative energy based on pressure from climate activist. Now activists want them to make money. Quantum Commodity Intelligence reported that, “BP promised a major overhaul of its strategy on Tuesday as the struggling UK major reported its worst quarterly results since the pandemic. Following news that activist investor Elliot Management has taken a stake in the firm, BP’s new boss, Murray Auchincloss, is widely expected to shift the company’s focus further towards oil and gas and away from low-carbon energy.

SP Global Commodity Insights has found that OPEC’s crude output rose slightly on month to 40.54 million b/d in January. OPEC+ oil producers with quotas pumped 71,000 b/d above target in January. OPEC crude production fell 20,000 b/d in Jan, non-OPEC allies’ up 40,000 b/d. Russia said that they were in full compliance with cuts.

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