Energy Prospectus

Oil Traders are moving to the sidelines because they don't know what to make of Trump Trade Wars. The silver lining in this dark cloud is that it probably means that OPEC+ will not increase exports this summer. - Dan

From OilPrice.com

Oil prices are on track for their largest monthly decline in six months. The Trump administration exacerbated the selloff with another threat of trade escalation.

Trump threatens Mexico with 5 percent tariffs. President Trump threatened to slap a 5 percent tariff on all goods imported from Mexico beginning on June 10. In a tweet, he said that the tariff would gradually increase over time unless illegal immigration stopped. The announcement is also a serious blow to attempts to pass the NAFTA 2.0 agreement, which needs be ratified in the national legislatures of Mexico, the U.S. and Canada. “The decision, understandably, is sending shivers down investors’ spines,” PVM said in a note. “U.S. refiners import roughly 680,000 barrels per day of Mexican crude. The 5% tariff adds an extra $2 million to the cost of their daily purchases.”

OPEC output falls by 60,000 bpd in May. A Reuters survey puts OPEC’s production at 30.17 million barrels per day in May, down 60,000 bpd from April and the lowest figure in nearly four years. Saudi Arabia increased output by 200,000 bpd, but Iran lost 400,000 bpd.

<<Oil Traders are moving to the sidelines because they don't know what to make of Trump Trade Wars.>>

Dan: You've suddenly stopped using scare quotes around “Trump’s trade wars,” as if they’re not real or have no real effect. Given the praise of Trump you’ve printed here--- highly emotional but lacking any evidence---we might keep in mind that any president will want to keep oil prices down to keep the economy boosted. And although tariffs implicitly blame another country---in this case, China or Mexico---in fact tariffs work as a sales tax on Americans, so that boosted treasury receipts could make possible policies such as infrastructure spending or tax breaks that Mr. Trump apparently favors. Washington & Main St both have reasons to want to keep fuel prices depressed: and the tariffs have not yet started to bite into demand.

I'm not in favor of the Tariff War, but I'm also not in favor of the crap China has been getting away with for years. For example, a company based in The Woodlands, Texas moved their manufacturing of high pressure propane tanks to China to save money. In less than a year, a Chinese company started manufacturing identical tanks using the U.S. company's patented process and one year later the U.S. company was forced out of business because the Chinese company sold the same tanks at a much lower cost.

Plus, as I have posted here MANY TIMES: The only reason I voted for Trump was because the other choice was a crook. I've voted for Democrats several times, but it will not happen again if they keep pushing socialist policies.

The quote below was made by Norman Mattoon Thomas (Presidential candidate; 1956-64)
“The American people will never knowingly adopt socialism. But, under the name of “liberalism,” they will adopt every fragment of the socialist program, until one day America will be a socialist nation, without knowing how it happened. I no longer need to run as a Presidential Candidate for the Socialist Party. The Democratic Party has adopted our platform.”

Actual U.S. oil production is much less than what EIA has been reporting each week.

EIA's Monthly 941 Report ( https://www.eia.gov/petroleum/production/ ) is our first look at actual oil & gas production for the United States. The most recent "actuals" we have are for March, which just came out last week.
February actual oil production was 11,664,000 BOPD, which compares to EIA's weekly estimates to 12,025,000 BOPD. They overstated production by 361,000 BOPD.
March actual oil production was 11,905,000 BOPD, which compares to EIA's weekly estimates of 12,100,000 BOPD. They overstated production by 195,000 BOPD.

Comments below are from Marshall Atkins at Raymond James on 5-31-2019:

DOE Petroleum Supply Monthly – March 914 oil data shows U.S. oil production growth below our model for the third month in a row. An expected seasonal recovery in GoM did allow overall supply to recover to near December 2018 highs. Some important points:

Total U.S. production came in about 75,000 bpd BELOW our model (11.905 million bpd versus our model at 11.979 million bpd)
> Gulf of Mexico production rebounded by 191,000 bpd m/m (reversing the 193,000 bpd decline from February) slightly (18,000 bpd) below our model.
> Lower 48 production came in 57,000 bpd BELOW our model – or actual growth of 41,000 bpd vs. our model at 98,000 bpd.
> Major declines came from Colorado (-17,000 bpd m/m), Alaska (-7,000 bpd), and Texas (-6,000 bpd) – while North Dakota (+42,000 bpd) and Oklahoma (+16,000 bpd) offset prior month declines and New Mexico (+23,000 bpd) showed continued growth.

Showing some possible signs of weather related impact, total petroleum demand declined by 1.8% y/y in March (following a 1.7% y/y increase in February). Looking across the major products, gasoline saw a sizeable decline (-2.9% y/y – though gasoline margins have been indicating better since) while distillate demand held closer to flat (-0.3% y/y).

Bottom Line: While demand figures were down slightly m/m, this month’s DOE report was bullish since the data showed weaker L48 supply growth than we forecasted (+41,000 bpd actual vs. RJe +98,000 bpd). Further, this marks the third straight month in which L48 supply came in weaker than our model, averaging ~66,000 bpd below our monthly forecast for each of the first three months of the year. Overall, the report shows continued slower production growth than expected and suggests a tighter oil market than we previously anticipated. This is the first time that actual growth has come in below our forecast for four consecutive months since we initiated our U.S. supply model in 2012.

Marshall Adkins is sharp. Let's hope his numbers help to take the curse off energy in market sentiment (!)