After the Fed raised its dot plot and took interest rate cuts off the table for the foreseeable future, most commodities like Gold and Silver got crushed. The markets freaked out a bit after the Fed projected the benchmark lending rate falling to 3.9% by the end of 2025, equivalent to a target range of 3.75% to 4% higher than the market was expecting. Yet despite a higher dollar index, Oil stood tall among commodities and stock markets that were melting down like Frosty on a hot winter day. Perhaps because the bullish fundamentals are getting harder for the market to ignore.
The weak demand narrative took a big hit after the Energy Information Administration reported total US oil demand of 20.4 million barrels a day, up by 1.3% from the same period last year and the fact that refineries were operating at 91.8% of their operable capacity last week. If demand was so bad, then why would refiners be doing that? If global demand is so bad, then why did we export a near record 4,895 million barrels of oil last week? If demand is so bad, then why did we import 6.6 million barrels per day last week, which was 665,000 barrels per day from the previous week?
If demand is so bad, then why are inventories of oil products so low? John Kemp Energy put the data in perspective. He points out that our refined fuel inventories for the three major transport fuels (gasoline, distillate and jet) are around 17 million barrels (-4% or -0.99 standard deviations) below the prior ten-year seasonal average so far in December. He points out that gasoline stocks have been particularly low (-1.24 standard deviations) with a smaller deficit in distillate (-0.91 standard deviations) while jet fuel stocks are in surplus (+1.39 standard deviations.
The other narrative is that U.S. oil production is going to continue to rise. And while that may be true when Donald Trump gets in office, the actual data so far seems to suggest that U.S. oil production has plateaued. The EIA reported that oil production came in at 9.289m million barrels a day which is just slightly below where oil production was a year ago.
The other reason other than drill baby drill that President Trump may keep oil prices down, we could also get an oil peace dividend. The possibility that we could get a ceasefire in the war with Ukraine is looking more likely as Russian President Vladimir Putin says he is ready to talk to President Trump on Ukraine. Putin also said that, “Putin: we’re ready for talks with Zelensky if he’s elected.” And that, “There are no pre-conditions for discussions”
Yet at the same time Putin wants to negotiate with the art of the deal maker from a position of strength. Reuters is reporting that Russian President Vladimir Putin on Thursday suggested a missile ‘duel’ with the United States that would show how Russia’s new Oreshnik hypersonic ballistic missile could defeat any U.S. missile defense system. Addressing Western skepticism about the Oreshnik, Putin suggested that both sides select a designated target to be protected by U.S. missiles. “We’re ready for such an experiment,” Putin said. In fact, maybe we could take it a step further and make this a new Olympic Event. I mean it might be better than all the blood being shed in Ukraine.
Biden for his part wants to spend as much money as he can on green energy projects perhaps to repay them for their unwavering support. Besides if you throw enough taxpayer dollars to the walls maybe something night stick. Then again… Oil Price reports that, “The Biden administration is rapidly approving green energy loans to solidify progress on the U.S. green transition before Trump’s inauguration. The Department of Energy’s Loan Programs Office is working to finalize as many loans as possible but faces criticism for the rushed process.” And why wouldn’t the rushed process be facing criticism, especially with some very high-profile failures in the green energy spending space.
Oil Price writes, “The Loan Programs Office at the Department of Energy (DoE) is working to finalize as many loans as possible before the change of government in January, as its future looks uncertain. During Biden’s leadership, the office announced around $54 billion in loans or loan guarantees, which is just a small portion of its total lending power, for projects such as the Rivian (NASDAQ:RIVN) electric car factory in Georgia and a massive power line in the Midwest. However, the office has closed just $13.5 billion of the deals to date. Kennedy Nickerson, a former policy adviser to the loan programs office, stated, “They see the writing on the wall… They want to get out as much money as possible just to safeguard as much progress as they can.”
Progress? What progress? Why have car companies lost billions on electric cars with all of the government kickbacks? Where are the charging stations? Why is the world burning more coal than ever? John Kemp Energy wrote that, “Global coal production and coal-fired electricity generation are both on course to hit record highs in 2024, despite the accelerating deployment of wind, solar and other renewables. coal production exceeded 9 billion tonnes for the first time in 2023, doubling in less than three decades, according to the Energy Institute’s Statistical Review of World Energy.
Nearly two-thirds of production was concentrated in China (52%) and India (11%); production from Indonesia (9%), the United States (6%) and Australia (5%) took the total share to more than 80%. China, India and Indonesia have all boosted production significantly over the last ten years even as output from the United States and Australia has dwindled. China’s production increased by a further 83 million tonnes in the first eleven months of 2024 compared with the same period in 2023. India has also boosted output by 66 million tonnes since the start of the year compared with the same period in 2023. Faster output from China and India has more than offset a decline of 55 million tonnes so far this year in the United States, putting global production on track to set a record.” So now if we can just throw another 55 billion dollars out there then maybe, just maybe!! Well, never mind.
Oil and products look like they are basing as we continue to close above key moving averages. Seasonally the price of oil boots up the end of December 13 out of the last 15 years according to the Moore Research Center. Unless the stock market gets totally wrecked, I expect that lows are in for the year and into the first quarter of next year. Get Hedged!
Natural gas is getting another bounce on cold weather. The Fox Weather Channel reminds us that the coldest air of season so far is to invade the northern US just before Christmas. Today the EIA released its report, and we expect to see 116 bcf withdrawal.
And despite Energy Secretary Jennifer Granholm prediction that LNG exports could increase the price of natural gas less than the cost of inflation, the reality is that US LNG exports are going to be a major part of the economy.
U.S. LNG export capacity is poised to double in next 5 yrs according to S&P Global. They say it will support 500,000 jobs per year and add $1.3 trillion to GDP by 2040. The US has some of the cheapest natural gas prices on the planet and is going to encourage even more jobs and manufacturing to come back to the United States.
The demonization of the US oil and gas industry by the Biden administration is one of their major failures and one of the reasons why they were soundly voted out of office.