Hamas Caves. The Energy Report 02/13/2025

President Trump is making good on his promises to lower oil prices even if it isn’t in the conventional way. Oil prices are plummeting after Hamas caved and could confirmed its commitment to continue implementing the ceasefire deal agreed to. Hamas is saying that the hostages will be released according to schedule. President Trump also mentioned a good possibility of ending the war in Ukraine. He is in discussions with both Putin and Zelensky, suggesting a potential path to peace and an end to violence.

President Trump is single handedly removing the risk premium in oil and it’s probably a good thing because if you look around the world key oil inventories are at their lowest level in two years. Total inventories of crude oil and refined products in commercial storage across the OECD were estimated at 2,737 million barrels at the end of January 2025. OECD inventories were the lowest for the time of year since 2022 and before that 2015, according to data from the U.S. Energy Information Administration. OECD inventories were 136 million barrels (-5% or -1.01 standard deviations) below the prior ten-year seasonal average.

Kemp Energy reported that, “Petroleum inventories in the advanced economies have depleted to the lowest level since 2022, after Saudi Arabia and its OPEC partners postponed planned production increases and U.S. shale growth decelerated. Diminishing inventories have put a floor under spot crude prices and pushed the futures market into a steep backwardation, attracting increased interest from hedge funds and other investors in the last five months. Since the end of January, however, the escalating tariff conflict between the United States and its major trading partners has sowed uncertainty about the economic outlook, capping further price rises.

Tariff and trade wars are expected to have a negative impact on industrial activity and boost inflation in the short term, both of which are likely to have negative consequences for oil use. Falling inventories have pushed crude futures into an increasingly steep backwardation as traders anticipate more limited crude availability. Brent’s six-month calendar spread traded in an average backwardation of nearly $4 per barrel (87th percentile for all months since 2010) in January up from an average of less than $1.50 (46th percentile) in September.

Hedge funds and other money managers responded to depleting inventories by purchasing futures and options on Brent equivalent to 320 million barrels between the middle of September and the end of January.

By January 28, fund managers held a net long position equivalent to 308 million barrels (77th percentile for all weeks since 2011) up from a net short of 13 million on September 10 (the lowest position on record).

Kemp reports that spot prices and spreads would likely have risen even more sharply but for the escalating tariff conflict between the United States and its major trading partners which is likely to disrupt supply chains and prolong inflation. The prospect of a renewed downturn in global manufacturing, persistent price increases and interest rates remaining higher for longer has unnerved investors.  Bullish optimism about a strong cyclical recovery in the major economies boosting oil consumption has given way to more caution. But that bullishness is now tempered by uncertainty about the impact of proliferating tariffs and the ability to avoid an unplanned escalation of the trade conflict.

Not to mention the prospects of peace. President Trump’s leadership on the world stage is single handedly reducing risk premium in the futures markets. Oil prices are not selling off because they’re worried about an economic slowdown. They are selling off in part because the economy is too strong but really because the United States is showing real leadership. The odds of a World War that was that was at the highest level at least since the Cuban missile crisis under President Biden has been reduced dramatically.

Fox Weather predicted it and it’s happening. Winter is back and that is causing another major spike up in natural gas prices. Fox Weather reported that a powerful and deadly winter storm that slammed the Plains and Midwest on Wednesday has pushed into the Northeast and New England, where it’s dumping a wintry mess of snow, sleet, freezing rain and rain that will lead to slow travel on area roads and highways Thursday morning.

Anthony Harrup at wsj.com reported that natural gas inventories probably decreased by less than average last week as a milder start to February curbed demand, particularly for heating in the residential and commercial sectors, while production picked up after January freeze-offs. Gas in underground storage is expected to have fallen by 96 billion cubic feet to 2,301 Bcf in the week ended Feb. 7, according to the average estimate of 11 analysts, brokers and traders surveyed by The Wall Street Journal. Forecasts range from a withdrawal of 82 Bcf to a withdrawal of 118 Bcf.

The U.S. Energy Information Administration is scheduled to report weekly natural gas inventories on Thursday at 10:30 a.m. EST. The predicted draw is smaller than the five-year average for the week of 144 Bcf and would reduce the deficit against the 2020-2024 average to 63 Bcf from 111 Bcf the week before. A return of below-normal temperatures across much of the U.S. this week and next are expected to widen the deficit in subsequent weeks.

Last week’s expected drawdown would leave natural gas stocks 244 Bcf below their level a year ago, when an exceptionally mild winter kept a lid on demand. Download the fox weather app to keep up with the latest on this winter weather that is driving natural gas prices.

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Call to open your trading account today by calling Phil Flynn at 888-264-5665r email me at pflynn@pricegroup.com.

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