Petroleum prices seem to be fighting too different battles causing wild swings in the market. Concerns about the economy versus the stark reality that supplies are still tightening against a backdrop of incredible historical geo-political risks.
Oil prices were riding high after a very bullish Energy Information Administration (EIA) reported another crude oil drawdown and reports that Iran vows revenge on Israel could create a multitude of scenarios that could imperil oil supply.
A stagflationary reading from the ISM on manufacturing caused a massive retreat in stocks that drug down petroleum. Lower expansion, less jobs and higher prices paid freaked out stocks putting more importance on today’s monthly unemployment report
The crude oil market is also preparing for an extension of OPEC production cuts. Yesterday’s JMMC meeting seems to suggest that the status quo would stay in place. OPEC Plus is still talking about tapering off some of the production cuts in the last part of the year. Yet unlike the last oil taper tantrum, the market didn’t seem as concerned.
Russia is showing more signs of cutting back production partly because they keep getting attacked by Ukraine but also because they want you do compensation cuts for their previous overproduction.
Bloomberg News reports that Russia’s oil firms have reduced pace of drilling from last year’s record as the nation deepened its OPEC+ production cuts. Rigs drilled 14,370 kilometers (8,930 miles) of production wells in Russia from January to June, 2.5% lower than the same period a year ago, according to industry data seen by Bloomberg News.
The bottom line here is that we believe that the fundamentals for oil are still extremely bullish. Concerns about the economy I think are overstated at this point mainly because the Federal Reserve will more than likely cut rates in September.
China's demand continues to be a concern. JODI reported today that China’s oil demand fell by 108 kb/d in May m/m while product exports rose by 159 kb/d.
Gas pains in the Midwest could be getting some help. The AP reported that, “The Environmental Protection Agency is issuing an emergency fuel waiver to help alleviate gasoline shortages in four Midwest states after the shutdown of a refinery in Illinois.
Exxon Mobil (NYSE:XOM) shut down its refinery in Joliet, Illinois, last month after a power outage when tornadoes and severe storms swept through the region.
Power has been restored, but it can take weeks to restart a facility like the Exxon Mobil refinery about 40 miles outside of Chicago, which can produce about 9 million gallons of gasoline and diesel fuel per day. In addition to Illinois, the waiver was approved by the EPA for Wisconsin, Indiana, and Michigan.
Chevron (NYSE:CVX) has had enough of California even though Chevron has deep roots in California. The adversarial relationship they’ve had with Gavin Newsom has forced the company to move their company’s headquarters from San Ramon CA to Houston TX.
Fox Weather is reporting that Florida remains on alert for torrential rains as invest 97 L takes aim at the eastern Gulf of Mexico. This storm will be watched very closely as it couldn’t impact oil exports as well as offshore production.
Natural gas could get support from the storm but fell below $2.00 after the EIA reported, “Working gas in storage was 3,249 Bcf as of Friday, July 26, 2024, according to EIA estimates. This represents a net increase of 18 Bcf from the previous week.
Stocks were 252 Bcf higher than last year at this time and 441 Bcf above the five-year average of 2,808 Bcf. At 3,249 Bcf, total working gas is within the five-year historical range.