The Energy Report 01/31/19
Sweet Talking Guy
Sweet-talking guy, saying rates will not rise. If you do believe in him, you believe the stocks will fly. He says he will be patient as he slows the balance sheet winddown. He’s a sweet-talking guy. Sweet-talking guy, but he’s my kind of guy. Oh, that sweet talker Fed Chairman Jerome Powell. He was sweeter than sugar, smoother than wine and said all the things the market wanted to hear. The sweet-talking Fed Chairman helped oil add to its best one month run since April of 2015. Oh sure oil was coming back from an ignominious price crash based on fear because of what they say was a stubborn and unmovable Fed, but seeing that the Fed now has listened to the market and sees the risk associated with a policy that seemed frozen in time. Now, all we must see is progress on the U.S. China trade talks and oil will be back on track to retest those 2018, $77 dollar a barrel highs. Cooler heads are prevailing in the energy complex and it only took a polar vortex to get us there.
We also hope to see cooler heads in the U.S. China trade dispute. Bloomberg News reports that President Donald Trump will meet China’s top trade negotiator in the Oval Office on Thursday for high-level talks, with little indication that Beijing will bend to American demands to deepen economic reforms. U.S. Trade Representative Robert Lighthizer will lead a second and final day of negotiations with Chinese Vice Premier Liu He, the highest-level talks since Trump met Chinese President Xi Jinping on Dec. 1 and declared a 90-day truce to reach a lasting deal to end the trade war. Trump is scheduled to meet Liu at 3:30 p.m., according to an email of his schedule from the White House. While a breakthrough deal is seen as unlikely from this round of negotiations, the White House has said a concluding statement will be released on the progress they’ve made on core issues such as Chinese technology transfers, intellectual property practices, market access and Beijing’s pledge to buy more American goods.
This would be the final piece in the bullish oil puzzle. The questions concerning oil supply and demand continue to get answered in the oil bull’s favor. The Fed we now know has the markets back. OPEC compliance to cuts is more than outstanding. Now if we get progress with U.S. China talks, oil demand slowdown fears due to a slowing China will all but disappear.
The Energy Information Administration (EIA) supply report gave the bulls an edge as well. The EIA also showed that gasoline demand came back in a big way. Once again it appears that the EIA has magically reversed a trend of slowing gasoline demand and magically restores it a few weeks later. The reality is that the death of U.S. gasoline demand was greatly exaggerated as gas demand jumped by almost 1 million barrels a day to 9.564 million barrels a day, way above year ago levels. Gasoline stockpiles also fell by 2.2 million barrels last week according to EIA.
The cold took its toll on distillates as well. The EIA reported that distillate supply fell by 1.1 million barrels, more than expected, leaving them 2% below the five-year average. They should tighten more in the coming weeks with record cold. Refiners will start to miss that Venezuelan heavy crude. While there is still some Venezuelan heavy oil on the way, we need more as this record cold will zap more supply.
Over all, crude supply only increased by 900,000 barrels, smaller than the 3.1 million-barrel rise expected. This came even as refiners lowered runs 90.1% of capacity and ran 16.5 million barrels a day. OPEC cuts are already taking their toll. So, oil products should be bought on breaks as supplies are set to tighten and demand will stay strong. On top of that, OPEC cuts along with the reduction of Venezuelan oil exports will take its toll. While the market is calm about the loss of this heavy oil now, over time this is going to become even more bullish. The Polar Vortex continues to impact everything.
Chicago almost ground to a halt yesterday. The AP is reporting that auto plants and other big energy users throughout Southeast Michigan are shutting down or limiting operations with high demand, and also a fire, creating natural gas shortages. Eighteen factories and other facilities run by General Motors, Ford and Fiat Chrysler are affected Thursday. It’s not clear when they’ll resume normal operations. The fire hit a Consumers Energy natural gas compressor station north of Detroit on Wednesday as record-cold temperatures swept over the region. The utility says all gas flow from the station was shut off, putting Michigan residents at risk of brief service interruptions with wind chills below zero. The affected plants are in the Detroit area as well as Lansing, Saginaw and Bay City, Michigan. Facilities served by the region’s other utility, DTE Energy, are not affected.
Even the CMEGroup trading floor lost power and had to go on backup generators! Baby its cold outside!
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The PRICE Futures Group
Senior Market Analyst & Author of The Energy Report
Contributor to FOX Business Network