The Energy Report: Hope and Prayer

The oil market is losing hope that global oil supplies will not be impacted in a time of war and rumors of war. Biden, in a primetime speech, made the case for wholehearted support for Ukraine and Israel by saying “We’re facing an inflection point in history. One of those moments where the decisions we make today; are going to determine the future for decades to come.”

And that speech came against a backdrop of a day where we saw the risk of the war spreading with headlines that shook the oil market out of its defensive congestion into a full-fledged upside price break out. Whether it was the news that a US Navy warship intercepted multiple projectiles near the coast of Yemen or the fact that the AP reported that, “Coalition forces were slightly injured in Iraq in a spate of drone attacks over the last 24 hours at U.S. bases in Iraq as regional tensions flare following the deadly explosion at a hospital in Gaza.”

There were reports that the Lebanese militant group Hezbollah’s media arm released a new video showing attacks along the border between Lebanon and Israel. It shows what the group claims are missiles striking several Israeli army positions on Wednesday. The Wall Street Journal reported that, “Israel ordered the evacuation of a city close to the Lebanese border, reflecting the Israeli military’s growing concern that a second front could open up to the north as it continues its bombing campaign in Gaza, including a strike on a church compound overnight.”

Or the reports by Fox News that said, “A Hezbollah official is warning that the Iranian-backed Lebanese militant group is “thousands of times stronger” than before and that U.S., Israel and other “malicious Europeans” should be careful, reports say.” As they shouted, “Death to America”. It will be interesting to see how markets react to this late-breaking story. Wires say that Palestinian President Mahmoud Abbas is to participate in the Cairo summit for peace on Saturday according to an official source. Of course, a lot of people think Mr. Abbas won’t have a prayer of cooling intentions but at this point that may be our best option, prayer.

Down on the trading floor, back in the days of an open outcry, if you had an order working below the market and you were curious as to whether it was filled you would put in what was called an order check.

The Biden administration put in a bid to buy oil at $70.00 a barrel for the SPR and if they put in an order check it would have come back with nothing done/unable. Now the Biden administration is making another attempt to buy back into the oil market by buying the Strategic Petroleum Reserve oil asking anybody to sell it to them for $79.00 a barrel to the tune of 6 million barrels. The Department of Energy says it will issue monthly solicitations through at least May 2024, for volumes that have yet to be determined. Maybe they should call it monthly begging.

Apparently in the real world and then the government world, you might be able to think that would work but in the real world when you try to put a bid basically $20 below the market, I wouldn’t expect a fast execution of that trade. In other words, it will be another failed attempt to refill the depleted Strategic Petroleum Reserve. Now you would think because they put a price cap on Russian oil you could buy it at $60 a barrel again that’s in the political world not in the real world.

This morning, the Russian Foreign Ministry said that OPEC+ cooperation allows to stabilize the oil markets despite “Western manipulation” with price caps. They say that, “Russia is a responsible energy supplier to global markets. Russian Foreign Ministry: OPEC+ cooperation is of great significance.

The Wall Street Journal reported that, “An Israeli airstrike that hit the Greek Orthodox Church campus in Gaza on Thursday killed 17 people, according to church officials and eyewitnesses. More than 400 Palestinian Christians and Muslims were taking shelter in the 2,000-year-old church and nearby campus buildings at the time of the strike, said a spokesman for the Orthodox Church. The Patriarchate of Jerusalem said despite the risks, it “is determined to continue performing its religious and moral duty” in the Gaza Strip. The Israeli military has confirmed that the blast was the result of its airstrike.”

Diesel fuel had a wild ride after the Biden administration decided to lift all oil sanctions on Venezuela for six months. Interestingly enough that comes just in time for winter and before the Presidential elections. Initially, diesel prices tanked on the news but by the end of the day, reversed course because the whole world realized that Venezuela could not add that many barrels of heavy oil to the market.

It is very possible that some barrels that might have been destined for China might end up in the United States. It’s a lot cheaper and more economical for Venezuela to send barrels to the United States. Because this is just a six-month window of lifting sanctions, it is not going to encourage the type of investment in Venezuela that is going to be needed. Many also believe that it won’t be politically expedient to extend the lifting of sanctions because no one really trusts that President Maduro will follow through on his promise of free and fair elections. Besides if Venezuela gets free and fair elections, then people here are going to want that too.

Obviously, the risks for oil and products going into the weekend are going to be extremely high. Those who bought early option trades with me may want to take profits and roll over. Traders still have to be prepared for extreme volatility and risk.

The natural gas market, because of bearish short-term fundamentals, seems oblivious to the world around it. Keep an eye today on the Baker Hughes rig count to see if we see an increase in oil rigs and a decrease in gas rigs. Start your natural gas option Christmas shopping early. Use this weakness in the market to put on calls. If you’re trading, it stays short until it closes back above the 10-day moving average.