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The Energy Report: Collective Cooperation and Harmony

Published 02/02/2024, 08:49 AM
Updated 07/09/2023, 06:31 AM

In a world where it seems like the gates of hell have been opened, it’s nice to know you can find a place where you can find “collective, cooperation and harmony.” Where might that be, you might ask. Well, it is no place other than the good old OPEC cartel.

As OPEC and its favorite co-conspirator Russia agreed to keep the status quo on production and suggested that future production decisions would basically become data-dependent, the meeting turned into a love fest. Kuwait’s oil minister Saad Hamad Nasser al-Barrak just gushed, praising OPEC’s “cooperation and Harmony”. Even Russia‘s warm and fuzzy Deputy Prime Minister seemed to agree. He suggested that the current cuts were just fine and dandy and said that,

“Any additional decisions could be taken at any moment and that the Joint Ministerial Monitoring Committee (JMMC)  JMMC agreed to take further market actions if needed”.

So nice to see that at least someone is getting along in the world. Oil sold off hard on hopes that the spirit of “collective, cooperation and harmony” might spread in the form of a ceasefire and hostage release in the Gaza Strip. A tweet by Al Jazeera that Israel had agreed to a ceasefire agreement caused an oil market plunge even after the new group recalled and removed the tweet. Yet later headlines raised questions after a Qatar official said there was no ceasefire deal yet for Gaza.

Then we heard from a Hamas official who reportedly said,

“We cannot say the current stage of negotiation is zero, and at the same time, we cannot say that we have reached an agreement.”

So much for collective peace and harmony. Even if there is a ceasefire, will it change anything as far as the risks to global oil supply? Does the ceasefire mean that the Houthi rebels will lay down their arms? Does the ceasefire mean Hezbollah will stop attacking? Will there be safe passage again in the Red Sea? When will the ceasefire mean that the US would call off its response against Iran after the Hezbollah bombing that killed three US service people in Jordan?

Well, we have heard from one Iran-backed Iraqi armed group Nujaba who put out a statement that, “We will continue attacks against US forces till Gaza war ends and US forces withdraw from Iraq.

The Wall Street Journal writes that,

“The US is said to have approved plans to strike Iranian personnel and facilities in Iraq and Syria in response to a drone attack that killed three US soldiers in Jordan on Sunday. US officials have characterized the response as a “campaign” that could last “weeks”, and will include both airstrikes and cyberattacks, according to NBC. It would target both the Iran-backed militias that carried out the deadly attack and Iranian forces that support them in the region, officials told ABC separately.”

This morning oil rallied back after Iran’s President Ebrahim Raisi gave a speech saying, “We hear the other side say it is not seeking war with Iran. We have said many times that we will not start a war. But if any country engages in bullying, the Islamic Republic will give a strong response.” This came after a report that, “An Iranian Revolutionary Guard advisor was killed in an Israeli strike on Damascus according to a  Semi-official Iranian news site.

In Iraq, they’re not feeling too warm and fuzzy about the US dollar. The Cradle is reporting that the Finance Committee and iraq’s parliament made a statement on Wednesday calling for the sale of oil and other currencies. The move is to try to shield themselves from the impact of potential sanctions by the United States on the Iraqi banking system.

The other concern for the oil market continues to be stability in the banking system. The stock market rallies on better-than-expected earnings from some of the big tech companies like Meta (NASDAQ:META) and Amazon (NASDAQ:AMZN). The underlying concerns and banking could continue to weigh on oil prices. Regional banks have taken a huge hit as the shares of New York Community Bank Corp closed at their lowest level since 2000 Bloomberg reported that the sheriff’s sunk 11% before the day’s previous plunge of 38%. Bloomberg says that the bank at the center of the renewed panic says it believes its stock will recover as investors consider what is called “value-enhancing actions”. Citigroup and JP Morgan have said the broader market has had an overreaction to the regional bank news that should make us feel warm and fuzzy.

On the flip side of that I don’t think too many people are going to be brave enough to be too short ahead of the US planned attacks so unless we see a ceasefire agreed to, more than likely there is an upside risk for prices today.

The power outage that caused flaring at the BP (NYSE:BP) refinery in Whiting should have people in the Midwest scrambling to fill up their gas tanks before prices rise. It’s unclear how long the disruption’s going to take. More than likely it’ll be back online but make no mistake about it, you’ll see those prices go up.

Exxon Mobil (NYSE:XOM) could have a good day as it surpassed its earning forecast for the first time in three quarters. Bloomberg reported that adjusted fourth-quarter earnings were $2.48 a share and were $0.26 higher than the consensus estimates.

If on the other hand, we get bad news on the banking front, and they start to fall apart, then we could see crude oil prices go down. Alternately though, the price of oil is headed higher. The OPEC commitment to keep cuts steady and our expectations that we will see better-than-expected demand in the coming weeks and months, we will see the market tighten significantly. While oil prices could dip to just below 70, if it does, that should be a very good low for the rest of the year.

Natural gas prices are going to be focused on the weather. The Freeport LNG export terminal had some delays leading to supplies not falling last week as much as people had thought. The Energy Information Administration reported that working gas in storage was 2,659 Bcf as of Friday, January 26, 2024, according to EIA estimates. This represents a net decrease of 197 Bcf from the previous week. Stocks were 54 Bcf higher than last year at this time and 130 Bcf above the five-year average of 2,529 Bcf. At 2,659 Bcf, the total working gas is within the five-year historical range.

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