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The Energy Report: Fast Enough

Published 05/21/2024, 09:28 AM

Ladies and Gentlemen, Start your engines! Let’s get the summer driving season underway. Summer can’t come fast enough as demand concerns linger. Even signs of OPEC Plus compliance to production cuts as well as signs of demand green shoots in both India and China are not helping the early morning oil market mood.

The market is also showing concerns about the direction or no direction on interest rate is fed officials yesterday came off hawkish and caused the oil market to sell off.  MarketWatch reported that Cleveland Fed President Loretta Mester on Monday suggested she was thinking about backing away from her prior expectation that the U.S. central bank will cut interest rates three times this year. In an interview with Bloomberg , Atlanta Federal Reserve Bank President Raphael Bostic said that it is going to take a while before they are certain that inflation is going back down to 2%.

Petroleum markets also is worried about this week’s oil inventories as the “whisper number” on petroleum inventories is suggesting that we might get a surprise increase in crude oil supplies even as there are signs that refiners are starting to kick it into high gear.   US gasoline demand has been a concern as there are fears that inflation is forcing changes in America’s driving behavior. Consumers are experiencing inflation unlike many have seen in their lifetimes and it seems to be taking its toll. Groceries or gasoline that’s the question many Americans sadly must ask. And because we’ve only had one crew draw in the last few months it’s raising questions as to whether crude supplies in the US are ever going to fall.

Gasoline and diesel crack spreads that were improving fell back as well as Brent time spreads that dropped significantly. That is raising concerns about global demand or at the very least an unwinding of global oil risk premium. Concern about the war in Gaza and its impact on oil supplies seems to have gone away. Iranian President Ebrahim Raisi’s death in a helicopter crash most likely will not change Iran’s oil production or export plans. Reuters reported that – Iranian President Ebrahim Raisi’s death in a helicopter crash upsets the plans of hardliners who wanted him to succeed Supreme Leader Ayatollah Ali Khamenei and will stir rivalries in their camp over who will take over the Islamic Republic when he dies.

Reports of another Ukrainian drone attack on a small independent refinery in Krasnodar Russia seem to not be a big concern because Russia seems committed to reducing production and exports anyway.

Vladimir Putin touted that January through April oil production Russian oil production came in at 195.7 million tons which was down 1.8% from the same a year ago. Russia continues to play hard to get about a commitment to extend of oil production cuts into 2025. Russia is widely expected to go along with the rubber stamping of the voluntary and involuntary production cuts going into the end of 2024 at the virtual June OPEC meeting.

Saudi Arabia is also showing signs of compliance and tightening oil inventories. Saudi Arabia's crude oil inventories were 139.285 million barrels of merge that was down from 145.092 million barrels in February. Saudi crude oil production fell to just 8.97 million barrels a day. India’s oil demand continues to rise another 179.000 barrels a day from last month.  OPEC projects that India’s oil demand will grow by 4% to 5.8 mbd in 2025. And a lot of that demand is y going to be fed by Russian oil. India is a country that has not fallen into line with sanctions on Russian oil and has seen its imports from Russia increase by 40% since last year.

Metals are rocking t copper wire and now aluminum is moving as the world rushes to secure metals to meet the growing demand for artificial intelligence and electronic vehicles as well as the expansion of the power grid.

Rio Tinto (NYSE:RIO) Group has declared force majeure on alumina cargoes from its refineries in Queensland, Australia, due to shortages of gas to power its operations. This story seemed to give aluminum a bounce.

The California public employee’s retirement system is saying they’re going to vote against all 12 board members nominated by Exxon at the company’s annual meeting as a protest. Barons reports that EXXON is playing hardball with two small environmentally conscious shareholders saying in a lawsuit filed in January that the funds are abusing the process of submitting resolutions at its annual meeting now that stance is being challenged by the country’s which is pension fund. Exxon Mobil basically is saying that these people have no economic interest but they’re just trying to make Exxon Mobil (NYSE:XOM) reduce their oil and gas production. New laws are going into place in California to raise gasoline prices not only in California but the neighboring states.

The early weakness seems to be a rocky road for petroleum, but we believe that this is an opportunity if you can get through the next couple of days depending on inventories today and tomorrow we think we will bottom out and start to have higher as we end the week but in the meantime get ready to ride the volatility. Natural gas continues to see its recovery from the depths of despair. Those long-term options that we recommended are starting to look nice.

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