Oil prices are giving into weak demand concerns out of China and hoping that their economic slowdown will make the loss of Libyan barrels somewhat negligible. This comes as JODI regs world oil demand at a near record of 1.07 million barrels a day.
On Monday, Libya’s National Oil Corporation (NOC) officially halted operations at its El Feel oilfield in the southwest of the country, exacerbating supply disruptions amid ongoing political turmoil. The NOC declared force majeure at the field, citing “current circumstances” that have hindered its ability to carry out crude oil loading operations. Force majeure is a legal term referring to unforeseen events that prevent a party from fulfilling contractual obligations.
Market Data said that China’s Shanghai Composite index fell 1.10 percent to 2,811.04 as mixed factory activity indicators raised new questions about efforts to stimulate the world’s second-largest economy. An official survey showed China’s factory activity hit a six-month low in August. A private survey manufacturing activity swung back to growth in August but deterioration in external demand led to new export orders falling for the first time in eight months and at the fastest pace since November 2023.
This comes against a backdrop of hostages getting murdered by HAMAS and the US seizing Venezuela’s version of Air Force 1 but still allowing the Venezuelan oil barrels to flow. Fox News reported,
“The United States seized a plane owned by Venezuelan President Nicolás Maduro in the Dominican Republic, Fox News has confirmed. Homeland Security Investigations (HSI) flew Maduro’s personal plane back to the United States Monday morning, when it landed in Fort Lauderdale, Florida, and is now in U.S. custody, a U.S. official told Fox News following an initial report by CNN."
The market is also freaking out about the promise by OPEC to taper back production cuts yet is overreacting as other OPEC members are promising compensation cuts and right now OPEC’s compliance to cuts is outstanding. In the latest Reuters poll OPEC pumped 26.36 million barrels per day last month. According to Reuters that was down 340,000 bpd from July, and that was the lowest total OPEC oil production since January 2024. Is it any wonder why US oil supplies have fallen 7 out of the last 8 weeks?
The Hothi Rebels are still at it. Reuters reported that they attacked two crude oil tankers – the Saudi-flagged Amjad and the Panama-flagged Blue Lagoon in the Red Sea on Monday, the U.S. military said, calling the assaults “reckless acts of terrorism”. The Houthis late on Monday claimed responsibility for targeting the Blue Lagoon with multiple missiles and drones but did not make any mention of the Saudi tanker.
The U.S. Central Command said the Houthis attacked the two tankers with two ballistic missiles and a one-way attack un-crewed aerial system, hitting both vessels. The question then becomes why the US and its allies can’t put a stop to this group. Maybe they should cut their funding somehow. Oh, but then, the Biden Administration would have to stop sending billions of dollars to Iran.
Germany's ill-fated move to go green once again shorts out. Bloomberg News reports that,
“Volkswagen AG is considering factory closures in Germany for the first time in its 87-year history, parting with tradition and risking a feud with unions in a step that reflects the deep woes roiling Europe’s auto industry."
Bloomberg says,
“After years of ignoring overcapacity and slumping competitiveness, the German auto giant’s moves are likely to kick off a broader reckoning in the industry. The reasons are clear: Europe’s efforts to compete with Chinese rivals and Tesla (NASDAQ:TSLA) in electric cars are faltering. “VW is recognizing just how serious the situation is,” said Harald Hendrikse, an autos analyst with Citigroup. “We’re living in a difficult geopolitical world, and Europe has not won that battle.”
Once again China seems to be overshadowing strong demand data out of other parts of the world. We think that at some point the supply squeeze is going to be too big to be ignored. The force majeure of Libyan oil is going to impact supplies in Europe and tighten supplies around the globe.
US exports should increase to try to fill that void and if that happens, we’re going to see our inventories drop dramatically in the coming weeks. Keep in mind the US has been importing more oil from places like Canada to make up for lost production in California where the government has discouraged production of fossil fuels.
California should know that Canadian oil is dirtier than the oil that was being produced in California but that’s what happens when do-gooders try to do good without thinking about the consequences. We fully expect that the market should start showing some signs of a bottom as we’re getting closer to the lower end of the trading ranges with winter ahead. We expect the market to get more nervous as we get closer to colder weather seasonally then we should start to see the prices move up.
Decent natural gas and record power burns in June is giving natural gas a little bit of hope that they will stop the plummet and stay above $2.00 a million metric BTU. Reuters reported that, “U.S. energy firms this week cut the number of oil and natural gas rigs operating for a third week in a row for the first time since late June, energy services firm Baker Hughes, opens new tab said in its closely followed report on Friday.
The oil and gas rig count, an early indicator of future output, fell by two to 583 in the week to Aug. 30, to its lowest since June. Baker Hughes said that puts the total rig count down 48, or 8% below this time last year.