Phil Flynn's take - Jan 11

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Phantom Barrels. The Energy Report 01/11/2024
BY PHIL FLYNN ON JANUARY 11, 2024 - 8:23 AM · IN MARKET COMMENTARIES, PHIL FLYNN ENERGY REPORT

Oil prices are rebounding this morning after selling off yesterday on an Energy Information Administration (EIA) report that saw product supplies explode to the upside. Almost everyone realizes the massive 8-million-barrel increase in gasoline supply or the 6.5 million-barrel increase in distillate supply it did not reflect a major increase in production or drop in demand. It was an adjustment to the books to reduce tax liability for oil product holders.

Demand for gasoline in diesel was not only higher than the week before but if you look at the four-week moving average for overall petroleum demand, it came in at 20.2 million barrels a day which is 1.6% higher than it was a year ago. Today Woods Mackenzie is predicting that global oil demand to rise by 2 million bpd in 2024. Wood Mac projected a total oil demand of 103.5 million barrels per day for this year. One of the highest and in my opinion one of the most realistic predictions around.

Still, the EIA report slowed the petroleum market momentum. It caused the oil market to stay in its recent trading range and delayed what could have been a breakout on the upside. Yet with increasing geopolitical risk factors heating up and a major blast of winter cooling things down, we must be on guard for potential spikes in the prices of petroleum and natural gas.

If you thought it was now safe to transport oil in the Red Sea, you might want to rethink that. Iranians have boarded a tanker in the Gulf of Oman according to Tamer Trackers. The tanker that the Iranians have boarded today in the Gulf of Oman is the ST NIKOLAS carrying Iraqi oil. Formerly known as the SUEZ RAJAN; she was seized by the US government for having transported a million barrels of Iranian oil in connection to a US company Anker. Oman is calling an investigation into the hijacking of an oil tanker in the Gulf of Oman by masked gunmen. AP is reporting Iran admitted it.

Libya’s production is still down. Reuters is reporting that protesters have threatened to shut down two oil and gas facilities near the Libyan capital Tripoli, with one group that is campaigning against corruption issuing a 72-hour ultimatum that ends on Friday. On January 7th Libya’s National Oil Corporation (NOC) on Sunday declared a force majeure with immediate effect at its Sharara oilfield, which can produce up to 300,000 barrels per day, due to protests in the area.

So much for the electric car movement. Hertz is giving up on electric cars and dumping their 20,000 electric fleet and going back to the good old-fashioned internal combustion engine. It looks like reality about the shortcomings of electric vehicles are becoming all too apparent, it also emphasizes the short-sighted drive by the Biden administration to force everyone into vehicles that will not have any real impact and reducing greenhouse gas emissions and are not scalable. The reality is that it takes so much more greenhouse gas emissions to produce these cars that the benefit is negligible at the end. Reuters says that Hertz said it expects to reinvest a portion of the proceeds from the sale of the EVs to buy gas-powered vehicles to meet customer demand. The car rental firm said the sales would account towards about $245 million in loss recognition during the fourth quarter of 2023.

The American Petroleum Institute is also warning that the Biden administration’s energy policies are creating a grave risk to our economic future. API is warning that Biden’s energy policies are sowing the seeds of the next energy crisis. Bloomberg reported that, “API President Mike Sommers told industry officials, congressional staff, and others at the event a few blocks from the Capitol. “Washington is on the cusp of spoiling the American energy advantage, undermining it with short-sighted policies and hostility toward US oil and natural gas,” Sommers said.

The API press release said, “While historic U.S. production is stabilizing global markets, API President and CEO Mike Sommers discussed what it will take to maintain America’s energy advantage. “We produce more energy than any country in the world,” Sommers said. “This benefits our economy, and our national security, and is our insurance in a volatile time. This is our American energy advantage. It didn’t happen overnight, and it can’t be sustained without the right policies from Washington.” “To maintain America’s energy advantage going forward, policymakers must increase energy leasing in federal lands and waters, approve permits in a timely manner, and remove barriers to developing American energy,” Sommers said.

And now we have Mother Nature working against us. Natural gas prices surged and dropped as the market is trying to balance the impact of what could be one of the coldest polar vortexes in over 100 years versus the fact we have a record supply. Probably the key thing for this market will be just how long the cold weather sticks around. Weather forecasters are mixed but all admit we’re going to see an incredible blast of below-normal temperatures. Most expect a warm-up after that. Yet this is where it gets murky. Some are predicting that we will then see another major cold blast after the thaw. If that’s the case, we could see prices soar. Others aren’t so sure. They expect us to return to normal to above-normal temperatures after the blast. Yet record supplies of natural gas won’t matter if we see sustained below-0 temperatures. This is especially true where private producers are warning of potential freeze-offs and that could cause shortages in places like West TX and other parts of the country also when you have extreme cold. Interruptible power sources such as wind and solar tend to fail or underperform. Just to be safe go out and get some firewood and find your big puffy coat. And to be safe make sure you are hedged for potential upside price spikes.

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Call to get special updates and to open your futures trading account by calling Phil Flynn 888-264-5665 or email me at pflynn@pricegroup.com.

Thanks,

Phil Flynn

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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