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The Energy Report: Houthis and Oil on the Rise

Published 06/24/2024, 09:12 AM

The rag-tag group of Iranian-backed Houthi rebels are a force to be reckoned with and are growing in power as the Biden administration seems unable to stop them from attacking ships. The Houthis, which the Biden administration removed from the foreign terrorist organization list in an attempt to appease the Iranians, are now thriving with the help of Iranian oil revenue that has surged to 6-year highs after the Biden administration failed to enforce sanctions on Iran.

That gave the Iranian economy a 35 billion dollar boost that Iran could then give to the Houthi rebels to cause mayhem and murder in the Red Sea and it seems that Iran is getting their money’s worth. While the Biden administration had to reverse course and put the Houthis back on the terror list, they seem to not have a plan to stop this terror group from growing in power.

Over the weekend the Houthis boldly continued attacks and now say they are joining forces with an Iraqi militia resistance group called the Islamic Resistance say they are going to attack Israeli ships. Yemen’s Houthis claim attacks on four ships at Israel’s Haifa port. The AP reported that: An aerial drone launched by Yemen’s Houthi rebels struck and damaged a vessel in the Red Sea on Sunday, officials said, the latest attack by the group targeting shipping in the vital maritime corridor. The AP also reported that “An attack by Yemen’s Houthi rebels targeted a commercial ship traveling through the Gulf of Aden but apparently caused no damage, authorities said Saturday, in the latest strike on the shipping lane by the group.

The Houthi attack comes after the sinking this week of the ship Tutor, which marked what appears to be a new escalation by the Iranian-backed Houthis in their campaign of strikes on ships in the vital maritime corridor over the Israel-Hamas war in the Gaza Strip.

That comes as oil traders will wonder how much blood refiners can squeeze out of a turnip. Falling US rig counts are being balanced with hopes that US drillers can continue to innovate to keep production rising as decline rates and falling rigs start to suggest that oil producers are being forced into peak production. The Baker Hughes rig count raised those concerns as drillers cut rigs to the lowest level since January of 2022

Reuters reported that “the US oil rig counts have been decreasing for 4 weeks in a row since the week ending on 31 May.

The total number was reduced to 485 last week, after peaking at 511. The oil and gas rig count, an early indicator of future output, fell by two to 588 in the week to June 21. Baker Hughes said that puts the total rig count down 94, or 14% below this time last year. Baker Hughes said oil rigs fell three to 485 this week, their lowest since January 2022, while gas rigs were unchanged for a third week in a row at 98, their lowest since October 2021.

The oil and gas rig count dropped about 20% in 2023 after rising by 33% in 2022 and 67% in 2021, due to a decline in oil and gas prices, higher labor and equipment costs from soaring inflation and as companies focused on paying down debt and boosting shareholder returns instead of raising output.

The rig count in the Permian basin, the largest U.S. oilfield, is expected to move roughly sideways this year, but edge down below 300 by end-2026 as U.S. producers remain capital disciplined, Goldman Sachs said this week. In the Permian formation in West Texas and eastern New Mexico, the total oil and gas count fell by one to 308 this week, the lowest since January, according to Baker Hughes.

Production growth in maturing Permian is likely to gradually slow down from exceptionally strong 520,000 barrels per day in 2023 to a still robust 270,000 bpd in 2026, , according to Baker Hughes.

The possibility of tightening supply and lower US output expectations is pointing us towards a tightening market.

Geopolitical risks are running high. Reports that Russian gas output is falling on refining issues are also supportive of oil products.

This comes as I expect that crude oil supply will fall by 3 million barrels this week. I am also looking for a 1-million-barrel drop in gasoline supply as well as a 2-million-barrel drop in distillate supply. Refinery runs should uptick by 1.0.

Today Reuters reported that EU countries on Monday agreed on a new package of sanctions against Russia over its war in Ukraine, including a ban on reloading Russian liquefied natural gas (LNG) in the EU for further shipment to third countries. Now let’s see if they enforce them.

Jodi Reported that India and China’s natural gas demand in both countries grew +7% y/y to total 13.6 bcm, driving growth in the Asia Pacific region.

The Biden administration paused LNG exports and Russia gladly filled the void. Biden is making the US look like an unreliable provider.

India’s LNG demand will continue to rise.

Natural gas futures after selling off in anticipation of the cool down are back on the rise.

EBW Analytics reports that the weather-dependent natural gas rally is faltering alongside weaker weather-driven demand forecasts. Instead, the supply side is rising with production at three-month highs and rising Canadian imports. Over the weekend, LNG feedgas also crumbled to six-week lows.

Further, the inability to hold key technical support at $2.76/MMBtu offers incremental downside risks into this week’s July expiration. While August may regain strength after assuming the front-month role, momentum overshooting fundamentals appears less likely.

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