They walk a lonely road, the only one they may ever know, don’t know where it goes, on this empty street of broken green energy dreams, mondegreens Phil Flynn of PRICE Futures Group.
In another of a continuing string of blows for the green energy proponents, it appears that demand for fossil fuels has been much stronger than was previously reported according to the Energy Information Administration and the demand for coal is breaking records. The flip side of that, the shortsighted policies driven by the green energy lobby or ‘big green”, are seeing more green energy dreams fail as the demand for electric cars plummets costing taxpayers and automakers billions. Failing wind and solar projects are putting us on a path of sharply higher energy costs and more warnings about the potential for future energy supply shortages.
Fundamentals for oil and products are getting more bullish based on recent data even though prices in the short term continue to struggle as it tries to assess the potential for Federal Reserve interest rate cuts and the prospects for a ceasefire deal in the Gaza Strip. Tonight Israel’s Channel 13 reports an Israeli official saying that some of the demands made by Hamas in the counterproposal are entirely unacceptable. Oil loading from the Russian port of Novorossiysk has resumed after a tempest, Reuters reports.
Oil prices are recovering on the reality of the tightening of supplies becoming apparent, not only in the Energy Information Administration’s (EIA) big-picture data but also in the weekly data release yesterday from the American Petroleum Institute (API). The API reported that “US crude oil supply fell by two million barrels led by another two-million-barrel drawdown in the Cushing, Oklahoma delivery point. Growing concerns about the tightness of distilling inventories were not eased in the API report as they showed a drawdown of 2.1 million barrels in the latest week an increase in gasoline supplies of 600,000 barrels did seem to be like a concession prize to the petroleum market bears.
Yet the bigger risk to the bear side is the fact that the EIA has been overestimating US oil production and underestimating US and global oil demand. The EIA forecasted domestic oil production growth this year by 120,000 barrels per day (bpd) to 170,000 bpd. That is a major drop from last year’s output increase of 1.02 million bpd and a blow to those that pointed to US oil production saying that Biden’s policies did not impact US oil output. The oil industry always disputed those claims as they warned that the Biden policies were sowing the seeds of the next energy crisis.
Precision Drilling is warning today that the US rig counts need to move up modestly to maintain current levels of US crude oil production. Morgan Stanly pointed out that Baker Hughes data saw the oil rig count drop at the start of November, but rig additions in the latter half of the month left the rig count flat at 450 MoM. The steady rig count recovery seen in October seems to have lost steam in November.
Of the major basins, the Permian added 2 rigs over November, while Eagle Ford and the Bakken were flat. Looking forward, the rig count rises to go into December before maintaining a steady level of ~455 rigs through mid-January. The rig count then begins to roll off week-on-week into February. So now the EIA says that crude oil production will rise to 13.21 million barrels per day (bpd) this year, 120,000 barrels a day lower than their previous forecasts, which is a problem.
S&P Global reported that “The global energy industry must ensure that investments in the oil industry continue to flow despite a changing landscape, and any big shift in focus could potentially act as a stumbling block for energy security as well as create a volatile market, OPEC Secretary General Haitham al-Ghais said. “We need to reiterate that the misguided notion of no longer investing in new oil projects would undermine the security of energy supplies and lead to major volatility.”
The Energy Information Administration (EIA) also increased its forecast for global demand while admitting it underreported demand in previous reports with its upward adjustments. Yet what is more of a concern they also acknowledged is that they may have been over-reporting US oil production as they reduced the US oil production outlook. The Energy Information Administration raised its forecast for world oil demand by 30,000 barrels a day and now sees demand increasing by a whopping 1.42 million barrels a day year over year. They also predict the demand growth will grow by 80,000 barrels a day in 2025 and expect to see a 1.9-million-barrel increase.
Today Jodi reported that India’s total product demand rose by 31 kb/d m/m to a five-month high. They also showed that India: oil consumption rose by 8.3% y/y to 20.038 million tons in January with Diesel +3.5% to 7.426mt and gasoline +9.6% to 3.100mt and LPG +7.6% to 2.698mt. Petcoke +21.6% to 1.680mtNaphtha +15.2% to 1.304mt.
How is that wind power thing going? Dan Tsubouchi at Energy Tidbits reported that Orsted, a global leader in Wind, cut its renewable energy capacity ambition to 2030 by 24-30% & its investment by 43%. This comes against the backdrop of tightening oil supplies in the United States it’s a market focused on the risk to supplies and the possibility of a ceasefire in Gaza that weighed on prices as well as regional banking fears.
The Wall Street Journal reported that Moody’s Investors Service cut New York Community Bancorp’s NYCB -22.22% decrease; red down pointing triangle credit rating two notches to junk late Tuesday, delivering another blow to the besieged Hicksville, N.Y., lender. Moody’s cited “financial, risk management and governance challenges” for NYCB, which reported a surprise quarterly loss and slashed its dividend last week, as the rating firm downgraded the bank to Ba2 from Baa3. Fitch Ratings on Friday downgraded NYCB to the lowest possible investment-grade rating. NYCB plunged 15% after hours. The stock hit its lowest close since 1997 on Tuesday, tumbling 22% on the day, having lost more than half its value since the loss was reported.
Natural Gas is plummeting as the supply side and the potential for LNG pauses could put producers out of business. Yet the mood could change quickly if the predicted Polar Vortex returns because that could wipe out the excess supply at a time when the last polar vortex broke records. The EIA reported that “On January 16, 2024, a record high of 141.5 billion cubic feet (Bcf) of natural gas was consumed in the US Lower 48 states (L48), exceeding the previous record set on December 23, 2022, according to estimates from S&P Global Commodity Insights. Well-below-normal temperatures caused by a large mass of arctic air that covered most of the continental United States increased demand for natural gas used for residential and commercial space heating and electric power generation. Both consumption of natural gas and withdrawals from underground storage increased to record volumes because of the higher demand.
Natural gas was also withdrawn from underground storage at close to record volumes to meet the increased heating and electricity consumption during the cold snap. Weekly net withdrawals of natural gas from underground storage in the L48 for the week of Saturday, January 13, through Friday, January 19, totaled 326 Bcf, the third-most for any week on record. EBW Analytics says that Both the March and April contracts briefly traded below $2.00/MMbtu intraday Tuesday.
While strong technical and psychological support may stall declines, extreme near-term weather weakness may prompt another leg lower this week. Still, a pattern flip from record warmth to a chilly back half of February may offer chances for a relief rally. Early March could feature Arctic air masses—potentially sparking another short-covering rally higher later this month.
Already, the front end of the curve flipped back into backwardation. Injection season contracts have fallen even faster than the March front-month, however—reflecting continued oversupply projections. Deteriorating demand seasonally into spring may offer risks for deeper natural gas price declines. Still, producer earnings season may reveal cuts to Cal 2024 production guidance in light of low pricing. If supply resets lower, NYMEX natural gas may mark a medium-term bottom within the next 30-60 days.
Learn more about Phil Flynn by visiting Price Futures Group.