Oil prices seemed to put in a reversal after rumors surrounding OPEC-Plus cuts and perceived oil and product market gluts seemed to be put to rest. The Energy Information Administration (EIA) and demand data from India and China report suggested that glut fears were unfounded and suggestions that Russia was not keen to go along with cuts seemed to be dismissed by other market sources.
Comments by Russian Prime Minister Alexander Novak caused concerns when he basically came out and said that no final decisions were made on an extension of cuts and that no decision would be made until the June OPEC Plus meeting. That raised concerns that Russia wouldn’t be on board for an extension of the cuts. Novak was rambling at the mouth saying that there could actually be an increase in the oil production, even under the current cut regime, raised eyebrows. His ramblings seem to be widely dismissed at this point. Some feel it’s Novak just being Novak as he seemed to back off those comments just a little bit. So, oil bouncing off the key 200-day moving average on crude oil going into the summer demand period, makes it look like the market has found some solid ground to start working higher off.
Yesterday, “The Energy Report” was lost in cyberspace, and I apologized to everyone who did not get the report I’ll have to add a little bit of what you may have missed. Oil prices got hammered because the American Petroleum Institute showed a big increase in both gasoline and diesel supplies. The API reported a much larger than expected increase in gasoline supplies of 1.46 million barrels in a whopping increase in distillate supplies of 1.713 million barrels. That raised concerns that weak demand for gasoline and diesel showed that the United States was already in a recession.
EIA report showed that demand improved for gasoline last week and that inventories are still below the five-year average for this time of year across the board. The EIA reported that refinery runs increased by 310,000 barrels a day last week. We are starting to see many refineries start to finish up plan maintenance and we could see more refineries like Citgo Lake Charles and Marathon Robinson kick into high gear.
The EIA said that commercial crude oil inventories fell by 1.4 million barrels from the previous week putting them at 459.5 million barrels, or 3% below the five-year average for this time of year.
Gasoline increased only by 900,000 barrels and supply is 2% below the five-year average for this time of year. Distillate fuel inventories increased by 0.6 million barrels last week and are about 7% below the five-year average for this time of year.
While there’s no doubt that high prices are taking its toll on consumers and Biden-omics is eating at their wallets every time they turn around, the reality is that if you look at the big picture and the overall demand prospects for the United States and globally, we are still on solid ground.
Oil demand in India increased by 6.1% year over year to a whopping 19.858 million tons.
Oil imports from China’s surge suggest a Chinese demand resurgence. Reuters reported that Chinese imports of crude oil rose by 5.45% in April compared to the same month last year as refiners stocked up on crude to prepare for the five-day local Labor Day weekend that began on May 1, China’s official statistics showed on Thursday. Last month, Chinese refiners imported 10.88 million barrels per day (bpd) of crude oil, up compared to 10.4 million bpd imported for the same month of 2023, per data from the General Administration of Customs cited by Reuters.
This comes as the possibility of global supply tightening looks even stronger after the Energy Information Administration cut its 2023 non-OPEC supply growth estimate to +2.55mbpd and increased its 2024 estimate but just +0.92mbpd (was +0.82) and raised the 2025 estimate to +1.71mbpd (was 1.59). What that means is that Non-OPEC producers more than likely will not be able to increase production to meet growing demand like they have in the last couple of years. The EIA also said that they expect voluntary OPEC+ crude oil production cuts and ongoing geopolitical risks will keep the Brent crude oil spot price near $90 per barrel (b) for the remainder of 2024 before falling to an average of $85/b in 2025 as global oil production growth picks up. They also predict that U.S. retail gasoline prices will average near $3.70 per gallon from April through September, which is like prices during the same period last year.
They warn though that refinery operations are a source of uncertainty for gasoline markets this summer. Tightening global refining capacity is a major issue so we can’t afford any cuts on the refining space. The EIA also predicts that natural gas production will fall by 2% from the first quarter of 2024 (1Q24) to 2Q24 because of low natural gas prices. We expect 1% less natural gas will be produced in the United States in 2024 than last year before production increases by 2% in 2025 to a record of almost 105 billion cubic feet per day (Bcf/d).
In fact, John Kemp at Reuters sees light at the end of the current natural gas glut tunnel predicting it will be gone by this upcoming winter. He is predicting that low prices will cure low prices. Kemp says gas inventories are at record highs for this time of year mainly because of exceptionally mild temperatures linked to El Nino. Kemp believes that low prices are going to start to cure low prices. Kemp says the ultra-low prices in gas are going to cause a surge in gas consumption by power generators. At the same time, he expects that natural gas producers will have to cut back. Kemp says that, “Ultra-low prices are already helping restore balance, arresting the accumulation of excess inventories, and are likely to eliminate the surplus before the end of winter 2024/25. Fewer rigs and completed wells will filter through into slower growth or even an outright decline in production before the end of 2024. The combination of higher consumption and exports and lower production is likely to eliminate the surplus and push prices higher before the winter of 2024/25 is over.
One of the things to point out is that because of low natural gas prices power grid reliance on solar fell. So, it’s probably a good thing that we have low natural gas prices because here comes the sun little darling!
Reuters reported that solar activity is nearing the peak of the 11-year cycle which is likely to occur during 2025 (making the next 18 months the best time to see the aurora). The increase in solar activity boosts the risk of a geomagnetic storm capable of damaging the electricity grid and satellite systems. But so far, the cycle is proving to be a weak one – stronger than the last cycle but otherwise the weakest for a century.
Golden Slumbers. Bloomberg reported that China’s central bank added to its gold reserves for an 18th straight month in April, although the pace of buying slowed in the face of record prices. The People’s Bank of China has long been one of the market’s largest buyers, steadily growing its bullion holdings since 2022. However, the precious metal’s record-breaking rally since mid-February — with successive all-time-highs reached last month — seems to have dented demand according to Bloomberg.
Bloomberg writes that the, “World Gold Council that showed in April, the People’s Bank of China bought 60,000 troy ounces down from 160,000 ounces in March, and 390,000 ounces in February. Bloomberg reports that first-quarter purchases by the world’s central banks, led by China, were the strongest on record, according to the World Gold Council. Some market watchers have suggested that gold’s 12% rally this year has been partly driven by mystery buyers among those institutions. So, kind of like a magical mystery tour?
The truth is the run-up in gold reflects the run-up in many other commodities. We saw not only historic highs in the gold market but also in the commodities like coco and grain. Prices look like they’re pointing to start moving higher as well as crop conditions around the globe continue to be challenging.