Fed Chairman Jerome Powell said the disinflation process has started and while that caused a lot of commodities and stocks to soar, oil did not get the message, states Phil Flynn of PRICE Futures Group.
Maybe it was because the Fed Chair stressed that the fight against inflation was far from over or more than likely it was because the Energy Information Administration (EIA) weekly data was surprisingly bearish with supply increases across the petroleum board. While the EIA data seems to be very volatile on a week-to-week basis and the fact that they just had to raise forecasts for underreported demand, the report was still a weight on prices that were based on other macro factors like the new weakness in the dollar that really should have rallied. Even the US manufacturing sector that fell into contraction did not help. The ISM purchasing manager index slipped to 47.4 in January from 48.4 and n December and 57.6 (85th percentile) a year earlier.
Yet before we get into the oil data, I think it is interesting to note that according to Reuters, Asia’s imports of crude oil reached a record high in January, but the strength wasn’t driven by China, with the world’s biggest buyer actually recording a decline. It was led by India. Reuters put Asia’s total imports at 29.13 million barrels per day (bpd), up 11.1% from December’s 26.22 million bpd and eclipsing the previous all-time high of 29.10 million bpd from November, according to data compiled by Refinitiv Oil Research. India, the region’s second-biggest importer, saw January arrivals hit a record high of 5.29 million bpd, up from December’s 4.78 million bpd. The data shows that Russia maintained its position as a top supplier, with January imports of 1.33 million bpd, up from 1.19 million bpd in December. Other major Asian oil buyers also saw gains in January, with South Korea importing 3.11 million bpd, up from 2.85 million bpd in December, while Singapore imported 1.65 million bpd, up from 910,000 bpd. Japan was the exception, with January imports dropping to 2.83 million bpd from December’s 2.96 million bpd.
We will have to consider what Chinese demand will be when they release themselves as the biggest importer. We agree with the projection that global oil demand will exceed all-time highs and we still believe that it will be hard to meet that demand which keeps us very bullish despite dissipating data. Oil needs to break out over $80.00 on a closing basis which I feel is going to happen at some point. Yet short term they have to look at US data that is short-term bearish.
Yet the ability to meet demand is key and one of the reasons that the world is ill-equipped to meet demand is that capital is being allocated to green energy projects that cost more money and yield much less energy. Even BP and the $569 billion dollars that are being shoveled into green energy from the Inflation Reduction Act may make some improvements in many facets of the green energy space but will not be able to make up for the energy production deficit that we are going to get as funds are getting diverted. And besides, a lot of the oil that Asia imported was from the US Strategic Petroleum Reserve.
Yesterday US Senators Joe Manchin (D-WV), chairman of the Senate Energy and Natural Resources Committee, Ted Cruz (R TX), Angus King (I-ME), Michael Bennet (D-CO), Maggie Hassan (D-NH), Dan Sullivan (R-AK), Mike Braun (R-IN), Tom Cotton (R-AR), Cindy Hyde-Smith (R-MS), Tommy Tuberville (R-AL), John Hoeven (R-ND), John Boozman (R-AR), Joni Ernst (R-IA), John Cornyn (R-TX), Jerry Moran (R-KS), Roger Marshall (R-KS), Rick Scott (R-FL), Mike Lee (R-UT), Kyrsten Sinema (I-AZ) and Mark Kelly (D-AZ) introduced the Protecting America’s Strategic Petroleum Reserve from China Act. The bipartisan legislation would prohibit the sale of American crude oil from the Strategic Petroleum Reserve (SPR) to any company under the control of the Chinese Communist Party and prohibit the export of any crude oil from the SPR to China. The US House of Representatives recently passed similar legislation by an overwhelming, bipartisan vote of 331-97.
I think both democrats and republicans are really questioning Biden’s use of the strategic petroleum reserve as they should. The strategic reserve was not built for the purpose of trying to manipulate markets. Biden will scream that oil companies are making more money but fail to take any responsibility for their policies that has not encouraged investment in US fossil fuels.
The EIA showed crude oil and refined fuels fell dramatically today after crude stocks increased by 4.14 million barrels to a 19-month high just as you ignore the fact that the SPR is down 280 million barrels. US crude oil stocks are now +3.5% above the seasonal five-year average. Gasoline stocks increased by +2.58 million barrels vs expectations of a +2.0 million barrel increase. US gasoline stocks remain -6.8% below the seasonal five-year average. Distillate stocks unexpectedly increased by +2.32 million barrels vs expectations of a -1.5 million barrel decrease. US distillate stocks remain -17.1% below the five-year seasonal average.
Natural gas is getting blasted on the forecast for a big warm-up after a cold blast. We’ll see the inventory report today. Look for a 145bcf draw.
Learn more about Phil Flynn by visiting Price Futures Group.
