The drain game continues as it is reported that the Strategic Petroleum Reserve released yet another 3.4 million barrels last week to lower supplies to 401.7, the lowest level since the 1980s, states Phil Flynn of PRICE Futures Group.
Yet, this is not helping the diesel crack spreads which exploded once again. Heating oil and distillate supplies are tight across the world and while economic turmoil continues to keep oil locked in a trading range, it’s perhaps a matter of time before oil prices scream to the upside. This comes as the International Energy Agency (IEA), the agency that famously told the world to stop investing in fossil fuels immediately, is now admitting that a price cap on Russian oil will not work and that the world, regardless of Biden’s SPR releases, will still need Russian oil.
EA Executive Director Fatih Birol in a speech said that we are experiencing “the first truly global energy crisis” according to Reuters. Reuters reported that “Rising imports of LNG to Europe amid the Ukraine crisis and a potential rebound in Chinese appetite for the fuel will tighten the market as only 20 billion cubic meters of new LNG capacity will come to market next year, IEA Executive Director Fatih Birol said during the Singapore International Energy Week.
At the same time the recent decision by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, to cut two million barrels per day (bpd) of output is a “risky” decision as the IEA sees global oil demand growth of close to two million bpd this year, Birol said. “(It is) especially risky as several economies around the world are on the brink of a recession, if that we are talking about the global recession…I found this decision really unfortunate,” he said. I think it’s unfortunate that the International Energy Agency failed and helped create this energy crisis. The International Energy Agency failed in its duty to be an agency to protect the energy integrity of Europe and the world and instead became a shill for green energy projects that have left the world to what they call the first truly global energy crisis.
Saudi Arabia agrees Saudi Energy Minister: Using emergency stocks may become painful in the months to come. Saudi Energy Minister Abdulaziz: People are depleting their emergency stocks and using them to manipulate the market when their original purpose was to alleviate supply shortages. Saudi Energy Minister Abdulaziz: We need to retain spare oil capacity. Saudi Energy Minister Abdulaziz: It is not about the recession itself, but about how severe the recession may be. Saudi Energy Minister: Last year Saudi Aramco was supplying Europe with 490,000 barrels, this September it was 950,000 barrels. Saudi Energy Minister Abdulaziz: We have spoken with many European governments regarding the current crisis. Saudi Energy Minister Abdulaziz: The current crisis may be the worst energy crisis.
Oil prices, in the short term, are locked in a bit of a trading range. We are still in the shoulder season, and we’re still being influenced by concerns about the global economy and interest rates. The oil market tries to ignore the dollar, but it can’t. When the dollar shows strength, it has put downward pressure on oil. We think as we get into winter, we’ll see a disconnect between the dollar/oil relationship because oil is going to be needed.
US officials are not going to Saudi Arabia’s “Davos in the Desert” conference. US business leaders are suggesting that despite the bad relationship between the Biden administration and Saudi Arabia. they see a world beyond Biden where they’ll be able to do business with the Kingdom despite the anti-Saudi Arabia agenda. The Wall Street Journal reported that “JPMorgan Chase & Co. Chief Executive Jamie Dimon, David Solomon, head of Goldman Sachs Mr. Dimon said he believed the problems between the US and Saudi Arabia were overblown and would eventually be worked out. “I can’t imagine every ally agreeing on everything all the time,” he said. “American policy doesn’t have to be everything our way,” Mr. Dimon added later. “You can learn from the rest of the world.”
Reports in the Wall Street Journal about the deteriorating relationship between the Biden administration and Saudi Crown Prince bin Salman are front and center. The Wall Street Journal reports that “Saudi Crown Prince Mohammed bin Salman, the kingdom’s 37-year-old day-to-day ruler, mocks President Biden in private, making fun of the 79-year-old’s gaffes and questioning his mental acuity, according to people inside the Saudi government. He has told advisers he hasn’t been impressed with Mr. Biden since his days as vice president, and much preferred former President Donald Trump, the people said.
Mr. Biden said on the campaign trail in 2020 that he saw “very little socially redeeming value in the present government in Saudi Arabia.” He refused to talk to Prince Mohammed for over a year, and when they finally did meet in Jeddah in July, Saudi officials present felt that Mr. Biden didn’t want to be there, and was uninterested in the policy discussions, the people said. US officials said Mr. Biden devoted significant time and energy to the meetings according to the Wall Street Journal.
Biden hasn’t had much success in dealing with friends and enemies in the Middle East. Not only has his mission to make Saudi Arabia a “pariah state” failed but he’s also failed in his talks with Iran to get back into the ill-fated JOCPA nuclear accord. Biden’s relationship with Israel has also soured because of his cozying up to the Iranians. Many around the world blamed his botched withdrawal from Afghanistan as opening the door to more aggressive behavior from Russia and China and blame Biden’s perceived weakness on the world stage as a reason why Russia thought it could get away with invading Ukraine. The Russians also looked at Biden’s anti-fossil fuel agenda as an opportunity. It is clear that other than real nuclear weapons, the other nuclear option Russia has is to cut off Europe’s oil and gas supplies. Thank goodness the adults are in charge.
Natural gas prices in Europe have been plummeting recently as mild weather and full storage is easing short-term concerns about the lack of supply. LNG import terminals in Europe are backlogged right now with no place to put the gas. Of course, we all know that storage is only part of the story. If we get a cold winter those storage levels could fall dramatically. If Russia decides to cut off supplies, then the market going into winter cannot be too comfortable about the risk of the potential price spike even though the prices are plummeting right now.
In the US, Bloomberg News reports, “Natural gas prices in the Permian Basin of West Texas are plunging toward zero as booming production overwhelms pipeline networks, creating a regional glut of the fuel. Gas in an area of the vast Permian known as Waha traded for as little as 20 cents to 70 cents per million British thermal units on Monday, traders said. That compares with the US benchmark futures contract that’s trading around $5.20 and European prices close to $28. If West Texas prices tumble into negative territory, energy producers will effectively be paying someone to take gas off their hands—something that hasn’t happened in two years. The price collapse illustrates the sharp contrast between bountiful US supplies of fuel and Europe’s worsening energy crisis as winter approaches. Tight gas markets in Europe and Asia threaten to have knock-on effects for diesel, coal, and power as governments and utilities scramble for energy, according to Bloomberg Intelligence.
As I said yesterday, natural gas in the US is extremely oversold and we got a little bit of a bounce. I’m not quite sure we are out of the woods yet. Still, at these levels, I don’t believe there is a lot of downside for prices especially if we get some colder weather.
Learn more about Phil Flynn by visiting Price Futures Group.
