Another week of bullish oil inventories cannot overshadow concerns about the global economy and the entrance into shoulder season. The Energy Information Administration reported U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) fell by 6.9 million barrels from the previous week, putting U.S. crude oil about 5% below the five-year average for this time of year. Yet the supply deficit did not seem to matter as the markets rocky Labor Day plunge and players staying close to the sidelines ahead of today’s all important Monthly Jobs report. A report that may determine whether the Fed cuts a quarter or a half point, assuming the Bureau of Labor Statistics is going to get the data right this month.
The market could not decide that the OPEC confirmed decision to not increase oil production was bullish because of less oil on the market or bearish because OPEC was fearing that their optimistic outlook on demand might be in question. Or is it a simple case of OPEC reaction to the price drop increasing the odds of increasing what is currently a global supply versus demand deficit. Yet while the bearish price calls are mounting after oil crash from above $80 a barrel to below $70, there are some that are raising concerns that the price of oil could be a danger to the economy and is not actually reflecting supply and demand at this point and the lack of risk premium is to supply is high.
Earlier this week it was Dr. Doom, Economist Nouriel Roubini, that raised those concerns and now the “king of crude” Dr. Gary Ross who warns that the oil market is pricing in a OPEC oil output increase, a Israeli Hamas ceasefire, a recession, none of which is yet happening. He warns that, “Financial length is massively short versus historical norms and that a bullish surprise is bound to happen to cause an explosive rally.
As far as demand numbers, in yesterday’s report, they were ok. Gasoline demand fell hard last week but that was because the racks were already full ahead of the Labor Day Holiday weekend.
Overall demand, based on the four-week moving average, came in far from anything resembling a recession. The EIA put demand at 20.8 million barrels a day, down by 1.6% from the same period last year. Gasoline demand averaged 9.1 million barrels a day, up by 0.9% from the same period last year. Distillate fuel product demand averaged 3.7 million barrels a day over the past four weeks, down by 0.7% from the same period last year. Jet fuel demand was up 2.8% compared with the same four-week period.
On the flip side the bearish calls are now coming out. Morgan warns that OPEC+ Russia will be forced to delay indefinitely its output hike. Yet they are still calling for Brent crude to average $75 a barrel in 2025, “with prices dipping into low-$60s by year-end. Bank of America forecasts an oil surplus in 2025, lowering its average Brent price to $75 a barrel (if OPEC+ stays put the whole year). If OPEC+ moves to boost production, it sees a “market share war.”
I think those calls are too bearish and we have seen these sharp types of selloffs in oil before, flipping the bulls into bears only to flip them again. Perhaps today’s jobs report will decide whether the bulls or bears are right. We are looking for a relatively weak reading on jobs. The Bureau of Labor Statistics got their hand caught in the cookie jar and now everyone is watching that jar more closely. We believe the Fed rate cuts along with more economic stimulus from China will keep oil demand humming. If we get a cold winter global distillate inventories and European gas inventories will be wiped away. Look to use this break to position or at least hedge because as Dr Doom and the King of Crude war, we could see the mother of all oil price spikes.
Is there anyone more optimistic than a natural gas producer. They always seem optimistic and keep on drilling. Bidens LNG pause is helping our competitors to like QATAR to lock in long term LNG deals with China and Saudi Arabia much to the detriment of US oil and gas producers. Even after some bullish demand after a long hot summer, fears that if we don’t get a cold winter could lead to a supply glut. Yet despite those long long-term odds, Willams is showing some optimism.
Reuters is reporting that, “Williams is on track to add 12 natural gas projects representing ~4.2B cf/day of capacity during 2024-27, CEO Alan Armstrong told the Barclays CEO Energy-Power Conference on Wednesday, according to Reuters. The additions follow 17 projects representing ~5B cf/day of capacity the company said it brought into service in the 2018-23 period. The new projects include the 1.8B cf/day Louisiana Energy Gateway gas pipeline, which is under construction and expected to enter service in next year’s H2, and the 1.6B cf/day Southeast Supply Enhancement, which is under development and will help meet growing demand from customers in several U.S. Mid-Atlantic and Southeast states, including fast-growing demand for electricity from data centers, Armstrong said. The CEO said Williams (WMB) also has ~30 projects under development representing 11.5B cf/day of capacity and roughly $10.2B in capital spending in its backlog that could enter service in 2026-32.
Natural gas put in a great performance after a bullish EIA report. Working gas in storage was 3,347 Bcf as of Friday, August 30, 2024, according to EIA estimates. This represents a net increase of 13 Bcf from the previous week. Stocks were 208 Bcf higher than last year at this time and 323 Bcf above the five-year average of 3,024 Bcf. At 3,347 Bcf, total working gas is within the five-year historical range.
Also, the Atlantic Hurricane Map has splotches all over it. The Fox Weather Channel is watching it all. They say that Forecasters with the National Hurricane Center (NHC) are keeping an eye on four areas swirling in the Atlantic Basin, including a newly designated Invest 99L off the U.S. East Coast and Invest 90L off the Gulf Coast. An “invest” is simply a naming convention used by the NHC in Miami, the Central Pacific Hurricane Center (CPHC) in Honolulu, Hawaii, and the U.S. Joint Typhoon Warning Center (JTWC) in Pearl Harbor, Hawaii, to identify areas they are investigating for possible development into a tropical depression or tropical storm within the next seven days.