Reports that First Republic bank was closing a unit of the bank and looking to offload a mere 100 billion dollars in assets was enough to knock oil off its string of gains, states Phil Flynn of PRICE Futures Group.
Not even the fact that the Fed swaps were no longer fully pricing in a rate hike by midyear on the banking turmoil, could keep oil higher because in part of the price spike and concerns that banks and oil may have to de-risk. Yet the growing risk is that while the market sells oil at light volume on the potential for more runs on small banks, an oil supply deficit is being ignored even as the evidence of it is becoming clearer with each passing day.
Last night the American Petroleum Institute reported a substantial 6.083-million-barrel crude draw. That is even after the Strategic Petroleum Reserve (SPR) released 1.1 million barrels of oil. That draw should put crude supplies just barely above the five-year average. Now add that the fact that SPR supplies are a gargantuan 233.5 million barrel below where they were a year ago and that should not make the market feel very comfortable. The reality is that supplies are extremely tight and the potential for a price spike is real, especially if we see major producers have a disruption in production.
While we have seen a recent downtrend in gas prices at the pump for the first time in a month after a very solid run, perhaps it may be too early to declare victory. The API reported that gasoline supplies fell by 1.919 million barrels last week. Increased refining runs and increased refining capacity have helped turn prices down but for that trend to continue we will have to see things go smoothly, especially as we expect that crude supply will continue to contract in the coming weeks. AAA reported that regular unleaded is at $3.646 a gallon down from $3.684 a week ago but still higher than the $3.439 a month ago.
Farmers have been rocking it in the fields with planting of the US crop ahead of schedule even as some areas are experiencing drought and below-normal temperatures. Still, the API reported that supplies up to 1.69 million barrels. While global diesel supplies remain tight, fear of shortages has eased somewhat as supply draws have slowed.
The war in Ukraine and sanctions on Russia have tightened supply it appears that according to Russia’s Deputy Prime Minister of Russia for Fuel Energy complex Alexander Novak, for them things are going great. Mr. Novak said that despite global sanctions “Russia’s energy industry has proven its durability and we have found new logistical routes {for their energy]”. Mr. Novak said that the “overall balance of oil supply and demand has remained unchanged” he said that the 20% of Russian oil did initially deliver to Europe is now redirected to other markets such as Asia. Mr. Novak almost pointed out that Europe has become more reliant on liquefied natural gas imports going to be a higher price for these functions on Russian natural gas.
Mr. Novak also sang the praises of the OPEC-Russia alliance. He said that without the work from OPEC and Russia, there would be a risk to global energy security. He also said that the group is not in the business of regulating oil prices. That comment also seemed to take a swipe at the US and Europe that has tried and so far failed to cap Russia’s oil sales to $60 a barrel. Mr Novack said also that it is sometimes difficult to reach an agreement among 24 countries in OPEC plus the outcome of their work is very effective.
The International Energy Agency Executive Director Fatih Birol was still critical of OPEC and Russia overnight. He warned that the economy is very fragile and does not require increased oil prices. He warned that OPEC must be very cautious. Of course, we have to ask, was the IEA cautious when they called for the end to fossil fuel investment? Apparently, they are only worried about the cost of fossil fuels rising when it’s caused by OPEC and not their green energy dogma.
THE IEA's latest delusion is that they are predicting that the electric car will dominate by 2030 not really focusing on how the production of all those electric vehicles leave a much larger carbon footprint.
The IEA says touts that the “Demand for electric cars is booming, with sales expected to leap 35% this year after a record-breaking 2022” and that they are expanding their share of the overall car market to close to one-fifth and leading a major transformation of the auto industry that has implications for the energy sector, especially oil.
“Electric vehicles are one of the driving forces in the new global energy economy that is rapidly emerging—and they are bringing about a historic transformation of the car manufacturing industry worldwide,” said IEA Executive Director Fatih Birol. “The trends we are witnessing have significant implications for global oil demand. The internal combustion engine has gone unrivaled for over a century, but electric vehicles are changing the status quo. By 2030, they will avoid the need for at least five million barrels a day of oil. Cars are just the first wave: electric buses and trucks will follow soon.”
Mr. Birol's enthusiasm may be very premature as the impact on the power grid and the downside of the future disposal of toxic car batteries will have the world reassess the speed at which we can go electric.
Still, he touts that “The encouraging trends are also having positive knock-on effects for battery production and supply chains. The new report highlights that announced battery manufacturing projects would be more than enough to meet the demand for electric vehicles by 2030 in the IEA’s Net Zero Emissions by 2050 Scenario. However, manufacturing remains highly concentrated, with China dominating the battery and component trade—and increasing its share of global electric car exports to more than 35% last year.
If we see the dollar retreat and yield start to rise, then oil should get some traction. The Energy Information Administration (EIA) report comes out at 9:30a central time. If they confirm the API, the downside on prices should be limited.
How warm was last winter! Enter the joke here. It was so warm that the Energy Information Administration reported that, “Less natural gas was withdrawn from storage this winter than in the last seven years! Withdrawals of natural gas from US underground storage facilities totaled 1,707 billion cubic feet (Bcf) during the 2022-23 heating season (November first to March 31), after subtracting occasional injections, according to our Weekly Natural Gas Storage Report (WNGSR). This recent heating season’s natural gas withdrawals were the lowest since the 2015-16 winter heating season. After entering the heating season at a 3% deficit to the five-year start-of-winter average, working natural gas in underground storage facilities in the Lower 48 states totaled 1,830 Bcf as of March 31, 2023, exceeding the previous five-year average (2018-22) for that time of year by 19% (294 Bcf). Continued growth in US natural gas production and reduced space heating consumption due to relatively mild winter temperatures accounted for less natural gas withdrawn this winter despite increased use in electric generation.
Learn more about Phil Flynn by visiting Price Futures Group.
