Oil prices had its best day in two months as the market got over its OPEC cut “taper tantrum”. The market seemed to awaken to the fact that with demand trends being what there are and production cuts by OPEC and falling rig counts in the US, we are sleepwalking into a global oil supply deficit. Yet at least according to U.S. Treasury secretary Janet Yellen, the sanctions on Russian oil were working “somewhat”. Well, if she means they are working for Russia, then she is right.
Russia built a new market for its oil and gas and according to data from the Russian finance ministry, Russia’s revenues from oil and gas surged by 73.5% in the January through May period of 2024 compared to the first five months of 2023. After raking in so much cash from places like China and India and other black-market buyers throughout Europe, they can afford to be a bit magnanimous when it comes to cutting back production to try to get in line with their promises to the OPEC cartel. The oil market took notice after it was announced that Russia made one of its deepest production cuts in a year, lowering their production in 9.393 million barrels a day. There was a cut of 344,000 barrels a day and while they are still about 34,000 barrels above their target range, it shows a sign of good faith that Russia is on board with the production cuts as we have been predicting for some time.
Still, some OPEC members are struggling or cheating on the production cut. I know, it’s shocking. According to a Platts Survey, OPEC increased output by 120,000 barrels a day despite Russia’s cut. The OPEC cheater list happens to be the usual suspects such as Iraq in Nigeria. On the compliance side, the gold stars go to not only Russia but Kazakhstan and Mexico. Mexico cut their oil output to a four year low. This came as Venezuela flooded the markets ahead of sanctions.
Janet Yellen tries to convince the world that price caps work somewhat yet the black oil market trade continues to flourish. Sanctions enforcement is abysmal.
According to Tanker Trackers, have witnessed or identified 221 shift oil transfer sessions in the Riau archipelago, which is double what they saw a year ago.
Bloomberg said, “Russia has shipped about 3.4 million barrels a day of crude so far this year, valued at about $37 billion at the point of export, and working around western sanctions has been part of that.
Russian oil proceeds to the state budget increased almost 50% in May from a year ago. And while Russia’s oil producers are set to flourish here in the United States a cutback in the right counts is starting to raise questions as to whether US oil production is getting close to a peak.
Yesterday the markets saw in report from Bloomberg that got a lot of attention that said that unless the US oil rig count starts to rise, then U.S. oil production could fall by as much as 1,000,000 barrels a day as existing oil fields start to see a decline.
Bloomberg pointed out that drilling in the US shale patch dropped to the lowest level in almost two-and-a-half years as operators vowed to make good on promises to investors for subdued production growth this year.
According to the article, Adam Rich, deputy chief investment officer at Vaughan Nelson, a Houston-based investment manager said that “We could probably keep the 12-13 million barrel-per-day level for six to nine more months, but if we don’t see rig counts really start moving up here, that’s going to be a big problem.”
Add to that threats by Senate Democrats who go after US shale oil producers for price fixing is going to create a situation that is potentially going to leave the United States very undersupplied and very dependent on foreign sources of oil. Will the madness ever end?
Regardless oil prices had a huge comeback day yesterday one of its best day of months after people started to realize that the OPEC “taper tantrum” regarding the OPEC production cuts was way overdone and the fact that we are facing a potential supply deficit later in the year.
And if you look at OPEC data, they expect the demand for their crew to add average roughly 43.65 million barrels a day of the second half of 2024 to that table that would imply a crude deficit leading to a drawdown of 2.63 million barrels a day,. That is assuming that they were going to maintain its April production of 41.02 million barrels.
Goldman Sachs also said in its latest report that it expects a supply deficit of up to 1.3 million bpd by the third quarter of 2024 as travel and cooling demand ramps up through the summer. That has been in line with what the energy report has been saying. Obviously, we’re glad the market is starting to come to that same assessment.
And while gasoline demand in the United States has been rocky it’s still not that far from being able to get back near record highs.
We know that air travel demand is the highest level that’s been since 2019 now there are signs that global demand is starting to pick up. There are even reports of shortages of jet fuel in Japan as the yen has made travel to Japan attractive.
So overall there seems to be a global oil demand bounce. Bloomberg reported that, “- Gunvor Group, one of the biggest independent oil traders, is snapping up benchmark-defining cargoes of crude oil that other companies are offloading, a possible indication of the firm being bullish. The Geneva-based company has kept 17 out of 18 North Sea crude cargoes that have been put into so-called forward chains so far this month. The total volume controlled by one single company is the highest since at least December 2019 when Bloomberg started compiling data. Each cargo is 700,000 barrels.
Years ago, I was involved in a potential refinery project that never got off the ground. The plan was to try to take advantage of the shale oil revolution. Te problem that we have in the United States that our US refineries were not really built refine the light shale oil. The idea was to build a refinery to solve that problem.
Yet that that time the inability to be able to hedge the niche market became a difficulty and was eventually a nonstarter for the potential investors.
Yet years later it seems that a refinery project that is looking to do exactly that is getting off the ground because on so many levels it makes sense. Yet they are facing some of the same challenges.
Reuters is reporting that, “Element Fuels Holdings, a Dallas-area startup proposing to build the first all-new U.S. oil refinery in nearly 50 years, on Thursday said it was relaunching efforts to build a large plant in South Texas.
The Brownsville, Texas, project has been proposed by entrepreneur John Calce at least twice before by his ARX Energy, and Jupiter startups, with one leading to a bankruptcy filing. The project was originally owned by a holding company that also owned Centurion Terminals.”
Element is looking to raise funds for the first phase, which will allow the refinery to process about 50,000 to 55,000 barrels per day of naphtha feedstock into gasoline. The company estimates the initial phase will cost about $1.2 billion, Calce said. The company said it was in talks with banks, private credit funds as well the U.S. Department of Energy for funding from the Inflation Reduction Act.’ I wish them luck.
Yesterday’s sharp rebound should have broken the downtrend for oil and products.
We should be in a buy the brake’s mode perhaps until the 4th of July. We have macro headwinds with inflation data and the Fed, but the trend is back up as demand should outpace supply.
We also get the American Petroleum Institute (API) report. We expect a draw of 2 million barrels on Crude oil. We also expect to see the same draws for gasoline and distillate. After massive crude adjustments in the Energy Information Administration (EIA)report as well as a hug surge in demand for other oils last week, we could be due for a very bullish report as the adjustments start to level out.
The mishmash energy policy of course is keeping people confused but now there is more pressure to give consumers the choice and what type of vehicle they buy and where they drive and when they drive it. Now in a pressed release “U.S. Senate Commerce Committee Ranking Member Ted Cruz (R-Texas) announced his plan to force a vote on President Biden’s anti-consumer EV mandate.
Cruz will introduce a disapproval resolution under the Congressional Review Act (CRA) to overturn a soon-to-be final rule from the National Highway Traffic Safety Administration (NHTSA) that would effectively ban gas-powered vehicles and mandate electric vehicles for American consumers. As proposed, NHTSA’s Corporate Average Fuel Economy (CAFE) standards for passenger cars and light-duty trucks would increase the price of a new gas-powered vehicle by nearly $1,000 with, at best, speculative benefits. When combined with the administration’s massive increase in CAFE civil penalties and the Environmental Protection Agency’s (EPA) vehicle emissions rule, the expected final rule will raise car prices for consumers and hurt U.S. auto workers.”
Natural Gas has been getting the nice rebound hitting the highest price since January on the hot temperatures and weather but one of the things that has been relatively quiet has been this start to the hurricane season that was being predicted to be so active. And while the Atlantic looks extremely quiet for right now Fox Weather is keeping an eye on the gulf. Fox Weather says that another window of tropical development is looking more likely this upcoming weekend for the Gulf of Mexico.