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The Energy Report: New Front

Published 10/13/2023, 03:01 PM

Oil prices are back above the 10-day moving average as it appears that Israel is ready to move on the Gaza Strip and Iran threatens a new front of terror against Israel. The UN says that Israel has ordered the evacuation of 1.1 million people from the northern part of Gaza.

The Biden Administration has second thoughts about releasing 6 billion dollars of funds to Iran, well known as one of the world’s biggest state sponsors of terror. Now word that Iranian-backed militants may open a new front in Israeli war could have massive implications for oil and the global economy. That could mean an increased threat of terror attacks not only in Israel but anywhere around the world. It also means to the world that you must be aware and if you see something say something. This is especially true here in the US as Bidens’s open border policies have allowed a lot of people into this country that we have lost track of and some may not have the best intentions.

Iran’s Foreign Minister is meeting with the Hezbollah leaders in what they have rebranded from the “Axis of Evil” to the ‘Axis of Resistance.” Tehran-backed militants could open a new front in Israel’s war against Hamas if the blockade of Gaza and attacks on civilians there continue, Iran’s Foreign Minister said, signaling a potential expansion of the conflict ahead of a meeting with Lebanon’s Hezbollah. Fox News is reporting that New York City is beefing up its police presence for a “global day of jihad.”

So, the oil markets went from panicking about the potential impact on supply last Sunday night spiking the price of oil sharply higher than the price of oil collapsed in your typical war pop and drop scenario. Oil sold off because at that time, despite the tensions in war and terror attacks, there was no immediate risk to actual supply. Now that is changing with all roads leading to Iran. Iran is the biggest financial backer of Hezbollah. Some people have reported that Iran directly planned the terror attack on Israel. There are also reports that Iran gave Hezbollah the green light to carry out the attack that Iran initially denied. It’s clear that by making threats of opening up new fronts in the war, the risk to oil supply is huge.

The Biden administration of course has turned a blind eye to Iranian oil sanctions as they desperately tried to get Iran back in the nuclear deal that allowed Iran to reap billions of dollars. The Biden administration says it wasn’t their fault that they were enforcing sanctions, but other countries were not. Yep, the United States could have taken more actions against the countries that did not comply with the Iranian oil sanctions so to try to deflect blame from not enforcing the sanctions, it doesn’t hold much water as you only have to look to the previous administration to see how Iran was really boxed in a corner and their economy was on the brink of failure.

There’s also a lot of talk about the US hitting record oil production. US crude production supposedly increased by 300,000 barrels a day to reach a record high of 13.2 million barrels a day. The investments made by the oil industry to expand production were made long before Biden was in office. If you talk to anybody in the US oil and gas industry, they will clearly tell you that the Biden administration policies changed the way that they would have produced oil. In fact, had the Biden administration clamped down on Iranian exports like they should have, that would have allowed US producers to fill that void. Yet the Biden administration killed incentives for U.S. oil producers in every way that they could. Whether it was releasing oil from the Strategic Petroleum Reserve which distorted markets or whether it was the threats of lawsuits and potential pipeline cancellations, it all served to make it more difficult for US producers to expand production.

So the Biden administration and its apologists will surely try to take credit for the record-breaking production number that we saw in yesterday’s Energy Information Administration report. The reality is that that number might have been much larger had we had a more professional and well-thought-out energy policy. It would have been better if the Biden administration worked with the US oil and gas industry instead of slandering them and blaming them for his policy errors.

Iran has seen their oil revenues explode with their exports and production at a five-year high. While Biden went after the industry, said he would eventually try to replace it here in the United States, did what he could to appease Iran, and turned a blind eye to who they really were in hopes that he could secure the ill-fated Iranian nuclear deal.

While the Energy Information Administration did report a much bigger increase in crude supplies and expected based upon the world of geopolitics, it doesn’t look like it’s going to be enough to offer a cushion against the coming risk that may be ahead of us. Not only has the Strategic Petroleum Reserve been drawn down to the lowest level since the 1980s to what some say is half of the normal demand side cover, but there are growing concerns again that distilled inventories are not going to be adequate especially if this conflict expands.

The EIA did show a big 10.2 million barrels of crude oil build but inventories are still 3% below the five-year average for this time of year. Total motor gasoline inventories decreased by 1.3 million barrels from last week and are about 1% above the five-year average for this time of year. Distillate fuel inventories decreased by 1.8 million barrels last week and are about 11% below the five-year average for this time of year.

This comes the day after the EIA said, “EIA expects most U.S. households will spend less on energy this winter.

They said that U.S. households that use natural gas and those that are in the West (regardless of fuel type)—together account for more than half of all U.S. households—spend less on heating this winter compared with last winter. U.S. homes that use heating oil will likely spend slightly more this winter than last winter because the increased heating demand due to a cooler winter in the Northeast, where heating oil is most used, is likely to offset lower heating oil prices. Of course, that now may change based on events.

Natural gas prices pulled back despite getting a bullish report and a sign that we may have hit a target going into winter and perhaps on the hopes that prices will pull back. Oilprice.com says that Asian liquefied natural gas buyers are going to wait for the war premium in natural gas to fade before they start buying. Yet if it does not fade, watch out.

EIA said that “Working gas in storage was 3,529 Bcf as of Friday, October 6, 2023, according to EIA estimates.

This represents a net increase of 84 Bcf from the previous week. Stocks were 316 Bcf higher than last year at this time and 163 Bcf above the five-year average of 3,366 Bcf. At 3,529 Bcf, the total working gas is within the five-year historical range.

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