Oil & Gas - Energy - Commodities - Resources (OILBRENT)

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Float The Boat. The Energy Report
By: Phil Flynn | May 14, 2024

Get ready to float your oil boat as data from OPEC and floating storage suggests the global oil market tightening. While US crude oil inventory supply in recent weeks saw some surprising increases, the same is not true if you look at oil in floating storage around the globe which now is at the lowest level since February of 2020, falling to only 55.92 million barrels as of May 10. This data came from Bloomberg News that reported a stunning drop in floating storage of 11% since just last week. So, in other words, the concerns about global demand falling off the map were probably overstated and that’s one of the reasons why oil had a pretty decent performance, which has been unusual to start the week for a while. OPEC stands by its prediction that the global oil demand will rise by 2.25 million barrels a day ( Mn b/d) to 104.46mn b/d this year and by a further 1.85mn b/d to 106.31mn b/d next year, the group said in its latest Monthly Oil Market Report (MOMR). We are also getting oil price support on signs that US refineries are ramping up production.

That should start a string of crude oil supply draws and if demand holds up, we could start to realize that this selloff in oil prices last week on reduced war premium and interest rate concerns may have been overdone.

In fact, if you look at the recent pullback in oil, many traders believe that it isn’t about supply and demand for oil but really about the ability of the Federal Reserve to continue to float the economy. That’s why after the inflation data, the market is going to pay very close attention to what Fed Chairman Jerome Powell says today during his speech at 10:00 AM Eastern Time 9a central time. Biden lead inflation has been a problem for the Federal Reserve that initially had planned on an aggressive path of interest rate cuts. Obviously the inflation data changed their narrative and that’s why today’s producer price index number could be key for the direction not only of oil, but the stock market, bonds and other commodities today.

The Fed must realize that they can only control what they can control. They can’t control the aggressive spending coming out of Washington in the Biden administration. They can’t control Biden trying to buy votes by doing things like trying to pay off student loans even though it has been ruled unconstitutional. The Federal Reserve cannot control the border and they cannot control the fact that the Biden administration must spend your tax dollars to support this record surge of illegal immigration.

Not to mention Biden’s approval ratings which are terrible in part because of the failures of his aggressive anti fossil fuel agenda. We know that that US automakers are losing incredible amounts of money.

The Biden-Harris Administration brags that their Investing in America agenda has already catalyzed more than $860 billion in business investments through smart, public incentives in industries of the future like electric vehicles (EVs), clean energy, and semiconductors. Yet based on the track record in the real-world, money looks like it has been wasted if the US automakers must retreat from producing a product that the government wants to force people to buy but nobody wants. Which is probably a good definition of the failures of Bidenomics.

So how does Biden respond to the failure of his electric car push? Very simply by putting tariffs on China and blame them for their own failures. It’s the same playbook as blaming the automakers or the food makers for inflation without stopping to have any self-awareness that their policies of spending and printing money are the main causes of inflation if not the only cause. So the Biden administration says that the tariff rate on electric vehicles will increase from 25% to 100% in 2024. The tariff rate on lithium-ion EV batteries will increase from 7.5%% to 25% in 2024, while the tariff rate on lithium-ion non-EV batteries will increase from 7.5% to 25% in 2026. The tariff rate on battery parts will increase from 7.5% to 25% in 2024. That is going to make US electric cars even more expensive to produce because at the same time Biden is mining for the materials needed to make lithium batteries here in the United States. Stop and think about that for a while. The tariff rate on solar cells (whether assembled into modules) will increase from 25% to 50% in 2024. And I could go on but you kind of get the gist.

Biden’s agenda, when it comes to energy, isn’t really about energy security for the United States. As he has said himself, it’s more about trying to incorporate environmental justice for perceived wrongs to people of color in the past. It is also because Biden says he sees climate change as an existential threat even more dangerous than Iran, Hamas, Hezbollah, Russia, North Korea and other terror networks. Yet Russia continues to try to establish its dominance in global energy production. Russian have laughed off the price caps when it comes to their energy and that has not stopped Russia’s oil revenue from soaring. Russia’s federal budget revenues from the oil and gas industry showed a significant increase to 4.2 trillion rubles ($45.7 billion) in the January-April 2024 period, 82.2% higher than in the same period last year, the country’s Finance Ministry announced on Monday.

Russia reports they have discovered oil and potentially will claim that discovery on waters that are not theirs. The Guardian reported this week that, “Russia has found vast oil and gas reserves in the Antarctic, much of it in areas claimed by the UK. The surveys are a prelude to bringing in drilling rigs to exploit the pristine region for fossil fuels, MPs have warned. Reserves totaling 511bn barrels of oil – about 10 times the North Sea’s entire 50-year output – have been reported to Moscow by Russian research ships, according to evidence given to the Commons Environment Audit Committee (EAC) last week.

We also will look at the American Petroleum Institute supply report. There will be a focus on gasoline demand that in recent weeks has been pretty pathetic. Most people expect an uptick as the weather improves but we continue to see the stress of the American consumer play out on the open road. Bullish gasoline spreads that normally flourish this time of year continue to struggle. Today could be a very key day for the RBOB gasoline futures. Diesel prices have struggled as farmers have struggled to get the crop in as planting delays are hurting demand.

The natural gas recovery has been good to see for many producers as it has been a demand led recovery. There are increase flows to LNG export trains that has been a savior for the beleaguered market. While the Biden administration plays politics with liquefied natural gas which arguably could be the most important fuel source to drive the global economy, Qatar is looking to regain its position as one of the dominant players. Blomberg reports that, “With its 2030 LNG expansion plan, Qatar is looking to solidify its position as one of the world’s biggest producers of the fuel along with the US and Australia. Total Energies, Exxon, Shell and other international oil majors are shareholders in the first two phases of the project.

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