Fundamentals for oil are taking a back seat to the shifting winds of war. It’s war premium in, then war premium out, then war premium back in again. Oil has faded since Sunday night on expectations that Israel’s move on the Gaza Strip and Hamas was indefinitely postponed. A headline from the Wall Street Journal sent oil prices falling even harder that read,
“Israel has agreed, for now, to a request from the U.S. to delay its expected ground invasion of Gaza.”
Yet the headline did not tell the whole story. The rest of the story was that the reason for the delay was, “so the Pentagon can place air defenses in the region to protect U.S. troops.” Oil then really surged back after Israeli Prime Minister Benjamin Netanyahu said in a TV interview what the market should have known, and that Israel is preparing a ground invasion of Gaza but did not give any information on the timing.
This comes against the backdrop of a Wall Street Journal report that:
“Hundreds of Hamas fighters received specialized combat training in Iran in the weeks leading up to the group’s Oct. 7 attacks on Israel, according to people familiar with intelligence related to the assault.”
Iran has had a more active role in the Hamas terror attack yet it’s raising questions about why the US is still allowing Iran to export oil. Tanker Trackers reported today that:
“A million barrels of Iranian crude oil shipped past the US Navy earlier today, heading to Syria. Are we the only ones seeing this?”
And that could be the key for the oil, to cut off the funding for Hamas you must cut off the funding to Iran. That means at some point the world is going to have to band together to shut down Iranian oil exports. And that is going to take some time.
This is an interesting dynamic. Fox News confirms Saudi Arabia intercepted a cruise missile that was on its way to Israel last week during a barrage fired by the Iranian-backed Houthis in Yemen.
The Biden administration reached out to Venezuela and decided to lift sanctions for six months in return for a promise from the Maduro regime that they would have free and fair elections. Yet is that promise already being broken after reports came out that Venezuela is investigating the opposition? Reuters reported,
“Venezuela’s Attorney General Tarek Saab said on Wednesday his office has launched a criminal investigation into the opposition’s weekend presidential primary, potentially risking the wrath of the U.S. which has relaxed some sanctions on pledges of a free and fair election. The government has decried alleged fraud since the Sunday vote, organized without state help and which organizers said attracted more than 2.3 million voters.”
Green Energy Update. Oil Price reports that,
“Shell plans to cut 15% of the 1,300 jobs in its Low Carbon Solutions business as it scales back some green energy ambitions and focuses on profitable projects including in the oil and gas sector."
Bloomberg reports that:
“Siemens Energy AG is in talks with the German government about securing state guarantees as it struggles to shore up its troubled wind-turbine unit. Shares plummeted 36%."
Reuters reports that China’s renewable boom can’t keep pace with power demand. They also report that:
“Power networks in Utrecht, Gelderland and Flevoland will be overloaded at peak times from 2026 due to the accelerating pace of electrification, the Netherlands’ climate and energy policy minister Rob Jetten said in an Oct. 18 letter to parliament.”
After Exxon Mobil Corp (NYSE:XOM). agreed to buy shale driller Pioneer Natural Resources (NYSE:PXD) Co. and Chevron Corp. (NYSE:CVX) is set to acquire storied US producer Hess Corp (NYSE:HES).
Saudi Oil Minister Prince Abdulaziz said:
“I don’t think Exxon would merge with Pioneer for charity purposes, or for that matter, Chevron would do that with Hess, it is a testament by its own virtue that hydrocarbons are here to stay.”
The market did not seem to like the fact that the Energy Information Administration report was not nearly as bullish as the American Petroleum Institute report the day before. EIA said that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.4 million barrels from the previous week. Yet at 421.1 million barrels, U.S. crude oil is still 5% below the five-year average for this time of year.
Gasoline increased by 200,000 barrels after the EIA reported another drop in demand. Distillate fuel inventories decreased by 1.7 million barrels last week and are about 12% below the five-year average for this time of year.
Total demand based on products supplied over the last four-week period averaged 20.2 million barrels a day, down by 0.8% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 8.6 million barrels a day, down by 2.7% from the same period last year. Distillate fuel product supplied averaged 4.0 million barrels a day over the past four weeks, down by 2.8% from the same period last year. Jet fuel product supplied was up 5.0% compared with the same four-week period last year.
The oil market, despite the comeback, still has not fully recovered and broken back into its uptrend just yet.
Reuters reports that:
“Crude oil prices in some of the world’s main physical markets have weakened due to a jump in freight costs and a drop in refining margins, according to traders and LSEG data, suggesting demand weakness that could filter through to the futures market.”
Still, while in the short term, the price action is weak, and the demand suddenly seems a bit shaky, there is still significant upside price risk. Yesterday’s sharp turnaround to the upside might be coming attractions for today’s action. Short-term traders should be short, but position traders need to be buying breaks. Be on guard for more two-sided action.
Natural gas is trying to bottom. Today we get the EIA data and if the injection comes in less than 70 BCF, then we should see a pretty good price move.