The Energy Report 03/13/19

Real Risks Rising

The risks to oil supply are rising as supplies start to fall. Oil is starting to feel the gravity of the loss of Venezuelan oil supply and the commitment by OPEC to cut back supplies, raising concerns of a tightening U.S. oil market. Those concerns were enhanced after the American Petroleum Institute reported a larger than forecast 2.6 million barrel drop in crude oil supply, led by a 1.1 million barrel drop in the Cushing Oklahoma delivery hub. Gasoline also saw an immense 5.8 million barrel drop in supply and distillates with a modest 195,000 barrel increase.

To add to the geopolitical concerns, Iran is threatening to respond to any Israeli naval action against its oil shipments according to a Reuters report. Iran’s defense minister made these comments on Wednesday, a week after Israel’s prime minister said its navy could act against Iranian oil “smuggling” to enforce U.S. sanctions.

Bloomberg reports that U.S. Energy Secretary Rick Perry said the decline of oil output from Venezuela will continue until there’s a change of leadership. Bloomberg reports that the International Energy Agency stated Monday that it expects Venezuelan output to fall to 800,000 bpd this year. Power outages in the nation have slowed production that has already been dropping in the aftermath of U.S. sanctions on Petroleos de Venezuela SA, the state-owned oil company. “I think that until there is a change of leadership there, that being able to get their oil and gas production back in a positive direction is going to be threatened,” Perry told reporters at a press gathering during the CERAWeek by IHS Markit conference in Houston.

This comes as the Energy Information Administration (EIA) cuts its forecast for U.S. production in 2019 and 2020. The EIA says that both years are still on track for new production records, yet smaller than previously thought. The March forecast expects calls for U.S. production to exceed 13 million barrels per day in the third quarter of 2020 for the first time, instead of in the second quarter as previously forecast. The change resulted from lower production expectations out of the Gulf of Mexico and the Niobrara and Anadarko shale plays.

The EIA also says that it expects the United States to become a net exporter of crude oil and petroleum products in 2020. They estimate that the nation will transition from net imports of fewer than 4 million barrels per day in 2017 to net exports of an estimated 100,000 barrels per day in 2020. The EIA revised down its projected 2020 production figure from 13.20 million bpd to 13.03 million bpd.

One positive story on the supply side comes from Bloomberg, who is reporting that Libya’s oil production is on track this month to hit an almost six-year high after the country resumed production at its biggest field on Tuesday. Libya is pumping 1.17 million barrels of crude a day, according to Bloomberg calculations of data from several people with knowledge of field operations. This figure includes 200,000 barrels a day from the recently restarted Sharara field, with volumes from the southern Libyan reservoir expected to rise to 300,000 barrels this week.

The weekly EIA status reports should confirm the tighter numbers we saw on the API. U.S. oil demand is very strong and despite talk of a slowdown in China, their demand is breaking records month after month. The march out of maintenance will be fraught with challenges and more than likely much higher prices. Get hedged and start to get positioned.

Nat gas, while it may see a record withdrawal this week for this time of year, may still break because it is warming up. The path of Nat gas will soon be down unless we see summer come hot and early.

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Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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