Global energy markets are rocking as the market reacts to supersonic risks. Reports overnight that Ukraine made their first MGM-140 Army Tactical Missile System (ATACMS) inside of Russia is raising concerns about how Russia will respond to this latest US approved escalation.
Bloomberg reported that Russia’s Defense Ministry said debris caused a fire in a military installation in the Bryansk region, which is on the border with Ukraine. Yet no casualties were reported. Russia said that five of the missiles were shot down and one was damaged, according to Interfax.
This attack came as Russian President Vladimir Putin says that this escalation has lowered the threshold for a nuclear strike in response to a broader range of conventional attacks. Bloomberg reported that European natural gas rose for a fourth consecutive day as traders monitor developments in Russia’s war on Ukraine after Kyiv carried out its first long-range missile strike. Benchmark futures gained as much as 1.1% after fluctuating earlier in the morning and are near their highest levels in a year.
Crude Oil looks like the technicals are turning bullish. Yesterday’s dip and flip suggests selling exhaustion and perhaps a renewed focus on supply that continues to be below normal. One of the consistent bearish arguments has been weak demand in China. Yet today OIL Price reports that, “China’s crude oil surplus shrank from 930,000 barrels daily In September to 500,000 bpd in October, Reuters’ Clyde Russell reported today, based on data calculations. He did say that, “however, the significant decline was nothing to write home about, as crude oil imports and refinery run rates during last month also fell.
In October China imported a total of 10.53 million barrels per day of crude oil, per data from the General Administration of Customs cited by Reuters earlier this month. That’s 9% lower compared to October 2023 and 2% below the import level of 11.07 million bpd in September 2024.
One of the most interesting dynamics for the energy complex might come down to weather. Over the last few years warmer than normal winters has allowed the market to get by despite inventories of winter fuels that in many cases like Natural Gas in Europe and global diesel supply, were below normal. Can we get away with that again? Mother nature has bailed out the market against tight gas and diesel supply by providing us with warm winters, but we are seeing some signs of winter by Fox Weather.
Fox Weather is reporting that, “a pair of powerful winter storms packing snow, heavy rain and strong winds is expected to lead to treacherous travel conditions this week. This comes as millions of people across the U.S. prepare to hit the road and pack airports ahead of Thanksgiving. The first storm system is already underway across the central U.S., where it unleashed rounds of severe weather on Monday. Severe thunderstorms packed damaging wind gusts that blew over tractor-trailers, dropped large hail, and even produced tornadoes that impacted the region at the start of the workweek. The storm system is now continuing on its journey to the north, where the FOX Forecast Center says it will begin to pull in frigid arctic air from Canada, resulting in widespread snow across portions of the Dakotas and into the Upper Midwest. It’s time for you to download the Fox Weather ap.
John Kemp Energy pointed out that, “Europe’s gas storage has depleted unusually fast since the end of October as cold temperatures and the lack of sunshine and wind have driven a big increase in heating demand and gas-fired generation. EU gas storage has depleted by more than 4 percentage points, the fastest for the year since 2016. Storage sites are still 91% full but that is well below the 99% rate this time in 2023 and 95% in 2022. The region is only 15% of the way through the typical heating season. Gas futures prices have risen to the highest for a year to attract more LNG cargoes, minimize gas generation, and conserve stocks as much as possible.
The outlook for colder weather should support the entire complex. I also believe that when it comes to geopolitical risk factors, they’re definitely on the rise. The inventories this week should show another drawdown in both crude oil and distillates. We’re starting to see some support and the crack spreads with an incredible pop up on the diesel crack yesterday, could signal that the market is starting to get a little bit concerned about diesel supplies well below the 10 year average going into winter.
The technical bottom yesterday in crude oil could signal that the hedge fund selling could be coming towards an end. We will get the American Petroleum Institute report today and that should give us a little bit of an idea of where we’re going to be for the Energy Information Administration supply report.
Natural gas is getting a pop from the weather and it’s going to be interesting to see if it continues to lean towards winter like weather.