Democrat Senate Foreign Relations Committee Bob Menendez called on Monday for a “freeze” on cooperation with Saudi Arabia, and Democrat Senator Dick Durbin is outraged that OPEC would dare cut production at a time when the Biden administration has to win midterm elections. The Democratic Party is not exactly known as the party of fossil fuel production in the United States and has done everything it can to stymie U.S. oil and gas production but, at the same time, get outraged when another country doesn’t increase its oil and gas production. Yet despite all the outrage in Washington, reports show that OPEC production in real terms actually went up recently, and there are reports that the spike in price over the last week allowed U.S. producers to put on hedges.
Platts reports that the OPEC+ alliance boosted crude production by 170,000 b/d in September to the group’s highest since April 2020, according to the latest Platts survey by S&P Global (NYSE:SPGI) Commodity Insights, but remains shy of pre-pandemic levels with several members pumping massively below their quotas. OPEC’s 13 countries produced 29.75 million b/d, a rise of 190,000 b/d from August, while Russia and eight other allies added 13.26 million b/d, down 20,000 b/d. The September performance was aided by sizable gains from Saudi Arabia, Iraq, and Libya, which more than offset losses from long-struggling Angola and Nigeria, which hit their lowest in the 34-year history of the Platts survey. As a result, the gap between the group’s quotas and actual production remained a sizable 3.6 million b/d, roughly the same as in August, the survey found. Iran, Libya, and Venezuela are exempt from quotas.
Russian President Vladimir Putin, for his part, is visiting the UAE, and he’s making a statement that Russia wants a balanced energy market and an even balance between supply and demand. He says that Russia’s actions are aimed at creating stability in the energy markets. Of course, stability only goes so far. If you cross him, he may cut off your supply.
Despite all the vitriol coming out of Washington, surrounding OPEC oil prices are pulling back. The reason why they’re pulling back seems to be the fact that recession fears are running high. The dollar is higher, and you can’t forget the fact of the oil market holiday curse. Yes, the propensity of oil to sell off on holiday, whether it be Thanksgiving, Juneteenth, or 4th of July, you name it. Oil prices started off firm on Sunday night but sold off, adding light volume as Canada celebrated their Thanksgiving in the United States. We celebrated Columbus Day and indigenous people’s day. For most of the oil trading session yesterday, oil prices tried to stay strong but gave into recession fears as the dollar increased and the stock market fell.
China’s demand worries also pressured us. Reuters reports that Shanghai and other big Chinese cities, including Shenzhen, have ramped up testing for COVID-19 as infections rise, with some local authorities hastily closing schools, entertainment venues and tourist spots. Infections have risen to the highest since August, with the uptick coming after increased domestic travel during the National Day “Golden Week” earlier this month. Authorities reported 2,089 new local infections for Oct. 10, the most since Aug. 20.
On top of that, we’re expected to see another big release from the Strategic Petroleum Reserve, even though they may be coming to an end. Because of the holiday and lack of exports, we should see a pretty big build in crude oil supplies this week. For the products, because of strong demand, we should see some slight draws, and refinery operations should be down a bit.
The ultra-low sulfur diesel market was exploding to the upside yesterday but then pulled back on reports that the French refinery strike might be put on hold. Reuters reported, “The French government said on Tuesday it stood ready to intervene to end a weeks-long oil refineries strike that has left a third of the country’s fuel stations running low and exacerbated a global shortage of distillates.
Gasoline futures also have pulled back a little bit but make no mistake about it. We’re starting to see higher prices at the pump. In California, the expectation is that when the refineries come back online, those prices will come down a bit, but in the rest of the country, they seem poised to stay strong this winter. One of the things that we have going for us is we’re not having an early blast of winter. But if that changes, we could see the entire complex take off mainly because of the lack of refining capacity and the fact that the oil market is going to become tighter as we get into December.
Diesel supplies are tight because of the war in Ukraine, and the lack of refining capacity and the lack of heavy oil went crazy bullish amid concerns that a strike would further reduce supply. The Guardian reported that more than a quarter of France’s petrol stations had partially or completely run out of fuel on Monday, the A.A. said. By midday, of more than 11,100 fuel stations, 2,093 were completely out of fuel and 1,101 had run out of one type of fuel, such as petrol or diesel.
Speaking of strikes, Bloomberg News reports:
“Oil industry strikes in Iran spread to a major crude refinery in the southwest, according to videos posted on social media on Tuesday, as workers appeared to join nationwide protests the country’s leadership.”
Natural gas got crushed on the weather, and the short term seems to be very bearish as we’re in the Goldilocks weather season so far. Expectations of an increase in supply which could be as much as 121 BC FS along with seasonal maintenance at LNG export terminals, weigh on prices a little bit. In the big picture, we still think that natural gas is going to do well this winter. We just have to wait and pick our spot.