After an almost record-breaking streak of weekly losses in crude oil, the market has eked out back-to-back wins but not nearly enough to overcome massive losses. While we believe that the market lows should be close to being in, it may need help from the slew of economic data that we get this week. CPI, PPI, and the Fed's decision on interest rates are keeping the market nervous as traders ask if the recent selloff is based on global oil demand cratering or is just a big-time market correction from the Israeli-Hamas conflict.
As far as demand, the signals have been mixed. There are concerns about a drop in Chinese oil imports versus signs that Chinese energy demand is not waning. Despite the efforts of COP 28 to rid the world of fossil fuels, it seems the demand for fossil fuels still looks to be on track to break records. The COP28 might want to read John Kemp at Reuters because he writes:
“China imported 44 million tonnes of coal in November 2023 up from 32 million tonnes in November 2022. Cumulative imports so far this year have reached a record 427 million tonnes compared with a prior five-year seasonal average of 228 million tonnes as the government orders power generators to build inventories and ensure reliable electricity supplies. That is interesting. China is worried about the reliability of its electricity supply, and I assume relatively affordability. I wonder why the Biden administration has not thought about that. Oh yeah. Now I remember! He thinks wind and solar can fix that. He is spending taxpayer money to do so and shelling out taxpayer money to companies that share his green vision.
Amena Bakr is reporting that Saudi Aramco is set to acquire a 40% equity stake in Gas & Oil Pakistan Lt. Wow they must be worried about that “peak demand” thing.
Argus Media reports that Chevron (NYSE:CVX) has been able to triple its crude production in Venezuela to 150,000 b/d since the US authorized limited sanctions relief roughly a year ago, chief executive Mike Wirth said today.
The 2022 sanctions relief allowed Chevron to “participate more fully” in Venezuela through basic engineering and maintenance on joint venture assets that previously produced just 50,000 b/d, Wirth said today at an event held by the think tank the Council on Foreign Relations! Way to go Joe.
Oil companies are also ignoring the threats by Venezuelan President Vince Maduro to stop oil operations in neighboring Guyana. Maduro is claiming ownership of some disputed oil properties and is also jealous of Guyana, an economy which unlike his, is flourishing while his socialist-based corruption economy is collapsing. Joe Biden’s lifting of sanctions has been Maduro’s best hope to hang on to power.
We know the European economy has been struggling but data shows their supply is higher than originally reported. Oil Analyst Giovanni Staunovo pointed out that Europe’s 16 nations’ oil inventories fell by 4 million Barrel (mb) month over month to 1,008mb in November (October revised down by 8mb). They pegged crude down 6mb to 427mb, gasoline was up 1mb to 107mb, and middle distillate -1mb to 389mb. Fuel oil is unchanged +2mb to 57mb, naphtha is unchanged at 28mb.
S&P Global reports that China is allowing independent refineries to use 2024 crude import quotas in December. They say they will allow the deduction of advance quotas from 2024 allowances.
Silicon Angle wrote that U.S. government officers and cybersecurity experts are warning that the Chinese military is allegedly attempting to infiltrate critical infrastructure, including power and water utilities and transportation systems in the U.S. The Washington Post reported, referencing unnamed officials and security experts, that hackers allegedly affiliated with China’s People’s Liberation Army have burrowed into the computer systems of about two dozen critical entities over the past year. The intrusions are said to be part of broader efforts to develop ways to sow panic, create chaos, and snarl logistics if war breaks out between the U.S. and China.”
Diesel prices have been outperforming gasoline futures in the last couple of days. The focus is still on tight supplies of diesel in spite of the fact that temperatures are relatively warm.
We believe oil and products are close to the bottom both seasonally and technically the market is looking a lot brighter. We still need to complete the bottoming process. Today we’re going to focus on the CPI. As long as that does not come in too hot, we’ll have a chance to rally.
Natural Gas had a stunning drop yesterday and probably shouldn’t have been a surprise. If you look at the weather forecasts when they dramatically turned warmer, the focus went to record production. There are fears of a growing natural gas glut that has many small producers in danger of going bankrupt unless this market turns around. Low prices can cure low prices but sadly it may mean that many producers are going to have to shut in wells.