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Willing But Able? The Energy Report
By: Phil Flynn | May 23, 2024

The Fed Minutes were a buzz kill for smoking hot commodities after it said that some Fed officials might be willing to raise interest, if need be, but the question is whether or not they are able. Raising rates in an election year is fraught with political fallout so even if inflation stays red hot, I can’t imagine that a rate increase would be possible this year, unless of course Donald Trump becomes President.

Regardless, the Fed minutes broke oil, but as bad as it looked, the support was not broken. The Energy Information Administration (EIA) Petroleum Status report showed a decent snap back in gasoline to 9.315 million barrels a day(mbpd) and diesel demand up to 3.883 mbd. That improved the lagging four-week average on demand to 8.9 mbd, now just 1.8% below year ago levels. Distillate improved to 3.7 mbd, down 6.1%.

Global oil demand expectations rose after the India flash PMI climbed to 61.7 in May from 61.5 in April. That was the third fastest pace upturn in oil hungry India output since Jul-2010 and was partially fueled by Russian oil imports. How is that price cap thing working? The report said that services drove the growth amid acceleration in business activity. Now Jodi is reporting that India’s total product demand was nearly at the same level month over month at 5.6 mb/d but was 3.4% above the previous year’s level.

The oil market is preparing for the June OPEC online meeting. The oil market should comment that OPEC decided to hold the meeting online, but they may have a surprise already baked into the online meeting.

The key issue that currently moves oil prices is whether or not OPEC will extend production cuts into 2025. While that is unlikely, in an online meeting there’s no doubt about the commitment by OPEC plus to continue along the path that they are on.

Amena Bakr points out that, “commitment among the OPEC+ alliance to the cuts is strong, and countries that have been overproducing their quotas are compensating for the increased volumes.” So, OPEC plus may do whatever it takes to keep the oil market tight and if demand surges, the supply deficit will occur.

US oil inventories are still higher than most thought they would be at this point as supply at the Cushing, Oklahoma delivery point hit 36.3 million barrels, the highest level since July. Yet stagnant US oil output, at least according to EIA data, suggests that as the refining season kicks in that could change very quickly. The EIA says that US production has been stuck at 13.1-million-barrel day. Is that a sign that we are seeing a peak in production? Or is it a sign that the EIA just gave up on updating weekly production numbers?

Regardless, the EIA’s snapshot of supply puts U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) with an increase by 1.8 million barrels from the previous week. At 458.8 million barrels, U.S. crude oil inventories are about 3% below the five-year average for this time of year. Total motor gasoline inventories decreased by 0.9 million barrels from last week and are about 2% below the five-year average for this time of year. So, both demand and supply are below year ago levels. Distillate fuel inventories increased by 0.4 million barrels last week and are about 7% below the five-year average for this time of year.

The EIA is also putting out an alert about the upcoming hurricane season. The EIA said, “Meteorologists are forecasting a particularly intense Atlantic hurricane season this year; they expect 20–25 named storms with a possibility of 30 or more, according to reports from AccuWeather in April. Colorado State University similarly forecasts an estimated 23 named storms this year. The potential for a stronger hurricane season suggests heightened risk for weather-related production outages in the U.S. oil and natural gas industry. With this type of a forecast coming from the Energy Information Administration, it’s probably critical that you get your Fox Weather app downloaded on your phone.

Oil prices look like they are still in the process of bottoming here even with the weakness thrown at it. It’s probably a perfect time to start getting back in and building a position slowly.

Gold prices did take a hit after the Federal Reserve minutes but also there are concerns that high prices might cure high prices in India’s red hot economy. Reuters reported that, “India’s gold imports in 2024 could fall by nearly a fifth from the previous year, as record high prices spur retail consumers to exchange old jewelry for new items, the head of an industry body told Reuters. Lower imports by India, the world’s second biggest consumer of the precious metal, could cap a rally that carried global prices to a record this week.

Natural gas prices sizzled after early weakness yesterday. Increase in the demand for LNG potential for weather related demand is causing the resurgence in natural gas prices with the best run in 2 years. EBW Analytics warns that, “While the immediate term outlook may feature a retreat into Memorial Day weekend as CDDs peak and June final settlement awaits, the medium-to-long term outlook may find support amid robust power burns across Texas and the Southeast and glimmers of upside potential for LNG feedgas demand.” If you believe the global natural gas crisis is over, you better think again. Energy Intelligence reported that European natural gas prices jumped to their highest levels in over four months on Wednesday after Austria’s OMV warned that its supply may be cut off by Russia’s Gazprom.

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