Energy Prospectus

The price of oil was down today, giving up about half of yesterday's $8/bbl spike higher. This roller coaster ride is likely to continue until the next drone strike; yes there will be more.

Next move will be determined by tomorrow's oil inventory report. API will give us a preview in a few hours.

Risk premium to linger. Even after Abqaiq is fully repaired, the perception that Saudi oil supply is invincible has been shattered. That could leave a risk premium on crude oil for some time to come. “No matter whether it takes Saudi Arabia five days or a lot longer to get oil back into production, there is but one rational takeaway from this weekend’s drone attacks on the Kingdom’s infrastructure -- that infrastructure is highly vulnerable to attack, and the market has been persistently mispricing oil,” Citigroup Inc.’s Ed Morse wrote in a research note.

EIA and IEA will keep telling the world that there is plenty of oil because their bosses want lower fuel prices. We don't want or need $100 oil. Higher fuel prices will cripple the global economy. What we need is for oil to settle into the "Right Price" that compensates appropriately those companies that explore for and produce the oil this world runs on for the risk they take. The market now needs to figure out the right "geopolitical risk premium"; my guess is that it is $10 to $15 per barrel. If you think Iran is done being the jerk of the world, you are wrong. Persians love blowing up stuff and killing people.

I believe that supply/demand is much tighter than we are being told because there is NO WAY U.S. oil production can reach EIA's lofty forecasts at the current active drilling rig count. I also believe the FEAR that there will be a global economic meltdown if the U.S. vs China trade war continues is overblown. Demand for oil will continue going up 1.0 to 1.5 million barrels per day year-after-year regardless of how Trump's Tariff War ends.

Oil prices are primarily determined in the short-run by computer trading. When stop loss orders trigger spikes or dips in the oil price we can and will see big moves in the oil price within minutes. When the price reaches a certain point it triggers buying or selling and the charts reverse. This is the robot trading world we live in.

We also live in a world that has an unending thirst for energy and most of the energy is being supplied by oil, gas and coal. That won't change regardless of who is in office.

BTW the Democrats "Energy Plan" to ban fracking is (a) insane, (b) will drive up fuel prices and (c) make us dependent on OPEC and Russia for the fuels we need.

Notes from Aegis Energy after the markets closed

WTI prompt month (OCT 19) was down $3.56 on the day, to settle at $59.34/Bbl.

Also, NG prompt month (OCT 19) was down $0.013 on the day, to settle at $2.668/MMBtu.

Saudi Arabia announced early this afternoon that crude oil supply would return to pre-attack levels by the end of this month.

The solution appears to be a combination of delivering oil in storage, restarting idle fields, and consuming less oil domestically.

The end result is sufficient oil to meet promised exports, while the damaged facilities are repaired.

October WTI shifted slightly lower to around $59 before the meeting, when Reuters and Bloomberg reported some of the same conclusions, but from their own sources.

WTI is still about $4 over where it settled on Friday. Its firmness may indicate some premium imputed into the oil curve for:
> Lack of spare capacity while the repairs are completed;
> Risk that the plan may not provide the supply expected; or
> Possibility of escalated conflict with Iran or Yemen
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I will be stunned if after they confirm that Iran was directly involved in the attacks that there is not a military response from Saudi Arabia that is supported by the U.S.