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Oil Market Recession. The Energy Report
By: Phil Flynn | March 14, 2023

The oil market is acting like a recession is inevitable or at the very least, we are seeing serious deleveraging of oil contracts. With more reports that signal more robust demand in China and with the dollar pulling back, one would think oil would be holding up against all this economic turmoil.

The SVB bank failure and fears of contagion are still raging even as stocks find some stability. Oil seems to be getting focused on because of the fall out and now the latest bank drama is Credit Suisse. They say they found some material weakness in their financial reporting! Everyone should stop driving their cars until we find out what it is! Besides, it will help the Fed deal with the inflation mess and banking mess they helped to create.

India says they have not agreed to a Russian price cap because they know that they will need Russian oil. Shweta Shaw reports that it’s like Indian refiners are using same Russian cheap oil, refining it and exporting it to Europe. Basically, Russian oil is reaching EU markets via India.

In the US, drilled but uncompleted wells are on the rise. The EIA reported that drilled but uncompleted wells rose by 21 m/m to 4,773 in February in a reversal of trend that could signal that inflation costs are slowing down completions.

The Wall Street Journal reports that, “declining energy prices go some way toward explaining this year’s unexpectedly strong economic data in the U.S. and Europe, economists say. Supply-chain managers on both sides of the Atlantic are more optimistic than they have been in many months, according to business surveys by S&P Global, a closely watched indicator of future growth. the windfall for households, businesses and governments is offsetting higher borrowing costs as central banks push up interest rates to cool historically high inflation. The price of a barrel of oil has fallen by more than a third since the middle of last year, to about $77 from $121, below its prewar level, as markets adjusted to Western embargoes of Russian supply and as oil was released from emergency reserves. Some economists warned a reopening Chinese economy would push oil prices higher, but that hasn’t happened yet according to the Journal.

Yet another report showing that Chinese product exports are falling is another sign that Chinese demand is on the rise.

Oil will be impacted today by the inflation data and the OPEC outlook. For the oil market, what we are seeing is a fear-based selloff and oil is out of whack with other markets. The oil sell-off is more than likely financially related and deleverage as opposed to supply and demand. If oil is the canary in the coal mine, then we are headed for a deep recession. If it is just a margin call, then it is a screaming buy. We still believe that this is a buying opportunity. We should start getting significant draw downs in crude and product supply.

The natural gas market is still in an impressive recovery mode. Cold weather along with LNG exports expectations rising is giving the market a boost.

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