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The Energy Report: Defensive Congestion

By Phil FlynnCommoditiesOct 19, 2023 09:51AM ET
www.investing.com/analysis/the-energy-report-defensive-congestion-200642879
The Energy Report: Defensive Congestion
By Phil Flynn   |  Oct 19, 2023 09:51AM ET
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The best definition of recent trading action in oil comes from long-time technical Analyst John Helms who describes oil markets’ recent trading action as defensive congestion.  Both bulls and bears, long hedges, and short hedgers position themselves in an uncertain world. Oil rallied and got stuck in a range and failed to close above the 20-day moving average and now overnight tested the 10-day moving average. Once again, the market sell-off this morning was based on headlines.

 The most recent is the fact that the Biden Administration Officially lifted sanctions on Venezuelan oil for 6 months.  Just in time for winter and the election.

This is the second time that oil sold off on basically the same story. It reminds me of all the selloffs that we saw months ago on headlines that the Biden Administration was lifting sanctions on Iranian oil, every time oil tried to break out over $80.

This time it’s Venezuela, which as we all know is seeing the sanction get lifted because the Biden administration is desperate to control oil prices in a world that has spun out of control. That is mainly because of Biden’s foreign policy of letting Iran off the hook.

Iran was the main financial backer of Hamas. Hamas e launched the inhuman and disgusting terror attack on Israel. They targeted and tortured innocent civilians. There is bipartisan pressure to shut down Iranian oil exports. That may be why Iran desperately called for an oil embargo because they know the world may soon shut them down. So it’s sort of like they will quit before they get fired.

While the market is reacting sharply to the news that the Venezuelan oil exports have been lifted and it’s a good thing if you want to help fix the global tightness of diesel supply,

With the help of Chevron (NYSE:CVX), the markets expect to expect to see more barrels come out of Venezuela. Reports say that Venezuela’s oil production could rise by 25% or by 200,000 barrels a day.

Still, if we indeed enforce sanctions on Iran, we’re still going to lose barrels on a comparison basis the good news is that Venezuela’s sour crude is much in demand. China had been the biggest buyer of Venezuelan oil and now with the US back in the mix some of that oil will come here.

President Biden’s historic visit to Israel in a time of war did seem to ease. tensions just a bit. Overnight President Biden said that they had evidence that the missile attack on the hospital did not come from Israel and more than likely came from Hamas.

The President said that:

"Hamas probably didn’t do it on purpose and that “our defense Department is highly unlikely that Israel did it they looked it’s a different footprint.”

“And I’m not suggesting that Hamas deliberately did it either; it’s that old thing you must learn how to shoot straight."

Despite all the talk of weak demand in China we’re seeing refinery runs in China and demand go through the roof. JODI Jody is reporting today that Chinese refinery runs increase by 2.9 million barrels a day to 16.54 million barrels a day and that is up 3.3 million barrels a day from the same. A year ago.

In recent days gasoline futures have been outperforming diesel futures part of that is because of the belief that if we sanction Iranian oil it’s going to be bullish for gasoline and if we lift sanctions on Venezuela, it will put downward pressure on diesel.

The Biden administration’s lifting of the sanctions on Venezuela comes at a time when we see extreme risk to global energy supply.

So in oil and the products we expect to see some with you today look at the 10-day moving average and if that holds you want to stay long close below the 10-day moving average could extend sell-offs but we really don’t expect to see that because the risk to supply it’s still great..

Yesterday he saw a very supportive Energy Information Administration report. One of the main focuses of the market is going to be on Cushing OK where crude supplies fell to 21 million barrels on our at the lowest level since 2014.

Reiners can’t get their hands on Strategic Petroleum Reserve oil now, so they are draining Cushing OK. That does create issues for the CME Group (NASDAQ:CME) delivery point if Cushing stocks fall below tank bottoms, It could lead to squeezes in the front end of the West Texas Intermediate trade especially towards expiration next month.

The EIA also offered some very bullish data. The death of gasoline demand was greatly exaggerated. Supplies are very tight. No room for any hiccups

The EIA reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.5 million barrels from the previous week. At 419.7 million barrels, U.S. crude oil inventories are about 5% below the five-year average for this time of year.

Total motor gasoline inventories decreased by 2.4 million barrels from last week and are slightly above the five-year average for this time of year.

Distillate fuel inventories decreased by 3.2 million barrels last week and are about 12% below the five-year average for this time of year. Total product demand over the last four-week period averaged 20.2 million barrels a day, down by 0.9% from the same period last year. Over the past four weeks, motor gasoline products supplied averaged 8.5 million barrels a day, down by 3.1% from the same period last year.

Distillate fuel product supplied averaged 4.0 million barrels a day over the past four weeks, down by 5.1% from the same period last year. The jet fuel product supplied was down 0.2% compared with the same four-week period last year.

Natural gas futures are pulling back on shoulder season weather.

Today we get the Energy Information Administration report on supplies, and we do expect to see an injection of 81 BCF for the winter months are starting to look relatively cheap.

If you’re a hedger it’s probably a good time to start looking at the options. If we get a cold winter the market is going to look extremely tight.

The Energy Report: Defensive Congestion
 

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The Energy Report: Defensive Congestion

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Gary Offill
Gary Offill Oct 20, 2023 8:34AM ET
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Phil's claims of strong demand are greatly exaggerated.
 
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