Energy Prospectus

Saudis and UAE have reached a compromise on OPEC+ production
Headlines only. Reports the UAE will have a new production baseline of 3.65M bpd.

Energy Report: Oil Supply Evaporates
By Phil Flynn 19 minutes ago (Jul 14, 2021 09:00AM ET)

Breaking Late…SAUDI-UAE COMPROMISE MEANS OPEC+ DEAL TO BE EXTENDED UNTIL END OF 2022 - OPEC+ SOURCE

This late-breaking news takes the possibility of a production war off of the table and adds much-needed barrels to the market. The UAE extra production is not going to be a deal-breaker for the bull market.

Global governments are looking around asking the question: what happened to all the oil? Bearish oil traders are pointing to the delta variant of the Covid 19 plague and raise the prospects of a resumption of Iranian nuclear talks in August to make a bearish oil case. That case looks weak. If you look at the hard numbers, the oil market is already undersupplied and headed for the most significant tightening of oil supply that we have seen in history.

Petroleum demand is surging beyond pre-Covid levels with total product demand YOY growth near a 30-year high according to EIA data crunched by Bloomberg. That is why we saw oil close at the highest level in more than two years and why the Fed had better worry about rising inflation. While some inflation may be transitory, we have a structural shortage in oil that has been, in part, created by the Biden administration’s energy policies.

The premature bet on so-called “peak oil demand” by bearish traders is now being unwound at a feverish pace. US crude oil producers are being held back by fiscal restraints and bad government policy that is helping drive this shortage.

As the International Energy Agency rightly pointed out, if OPEC+ doesn’t raise production pretty soon, we’re going to see U.S. oil supplies fall dramatically.

OPEC+ Russia control the global oil market. The U.S. has retreated from trying to compete with OPEC+ to be a dominant player on the global stage. This retreat, led by the Biden administration, is leaving the U.S. economy more vulnerable especially as we rack up record amount of debt and now seeing signs of more inflation. Low oil prices would also help keep inflation under control. The U.S. shale oil revolution changed the way that the economy worked and allowed unprecedented growth with little or no inflation.

Anyone who has followed the oil market for the last few years realized that the reason why we saw historically low oil prices at a time when demand was near record highs was that the U.S. shale producers produced record amounts of oil.

In what will be considered a major strategic blunder, the Biden administration has decided to pull back from being a dominant player in the fossil fuel space without having a good alternative plan in place. The U.S. shale oil producers used to be a check against the power of the OPEC+ cartel. Now we are allowing OPEC+ to have a greater influence over our economy.

We’re seeing a little bit of a pullback from those two-year highs. The pullback in oil is due to some profit-taking after the American Petroleum Institute report showed U.S. crude supplies fell by 4.079 million barrels, an impressive draw but countered a little bit by a surprising 3.699 million barrel build in distillate fuels. Gasoline supplies reportedly fell by a less an expected 1.545 million barrels and would suggest that record gasoline demand eased a bit after the July 4 holiday.

The crude oil market is still concerned about some talk that Iranian nuclear talks might resume in August. One delegate said that the Iranian talks might resume in August. Still, that is a far cry from actually getting a deal to return Iranian oil to the market. At least legal Iranian oil back on the market. The worst kept secret is that Iran is selling oil under the table without any pushback from the Biden administration.

Natural gas continues to look strong and the Wall Street Journal does a great job explaining why. The Wall Street Journal writes, “A scramble for natural gas is creating pockets of scarcity in the global market, boosting prices for the fuel and for the electricity generated by burning it. Rampant demand in China is sucking in chilled cargoes of gas from the U.S., after a year in which American energy companies throttled back production. A drought in Brazil has added to the competition by curtailing power output from hydroelectric dams.

Searing heat in Canada and the Pacific Northwest has also lifted gas demand. Some places are missing out, like Pakistan, where a shortage of gas and the delayed onset of the summer monsoon have prompted power outages.

John Kemp at Reuters points out that, “U.S. Cooling demand has been slightly above average so far this year, with the number of population-weighted cooling degree days +7% higher than the long-term average. Seasonal temperatures have been much warmer than usual along the east and west coasts and in the northern tier of states, but normal or below normal in the southern tier and along the Gulf Coast.

By Jonathan Tirone
(Bloomberg) -- Nuclear talks between world powers and Iran
aren’t likely to resume until after the Islamic Republic
installs its new president next month, all but eliminating the
chances of an early resurrection of their accord struck six
years ago Wednesday and a jump in Iranian oil exports.
A seventh round of negotiations in Vienna is expected to
convene around mid-August, according to two officials familiar
with the schedule, who asked not to be identified in line with
diplomatic rules. A third European attache, who also requested
to remain unidentified, said Iran was only expected to resume
talks once Ebrahim Raisi has been sworn in as president early
next month.
Another slip in the timetable could further tighten energy
markets counting on Iranian oil and gas exports later this year.
A dispute between two foes of Tehran -- the United Arab Emirates
and Saudi Arabia -- is preventing OPEC+ from boosting supplies
as major economies emerge from pandemic lockdowns.
Iran Can Quickly Pump 3.8m b/d of Oil If Sanctions Eased:
IEA
The star-crossed agreement capped Iran’s nuclear activities
in exchange for sanctions relief until then-President Donald
Trump unilaterally withdrew the U.S. in 2018. Iran responded to
reimposed penalties by gradually breaking the accord’s nuclear
covenants and expanding the industrial infrastructure used to
enrich the uranium fuel needed for power reactors or weapons.
Diplomats have been trying to negotiate a way back since April.
Both the Biden administration and its European allies
warned last week that they aren’t willing to wait forever for
negotiations to resume. Even Iran’s typically supportive ally
Russia appears impatient.