The Energy Report 04/12/19
Too Little Too Late
OPEC is sending signals that they may raise production if the stuff hits the fan. Will it be too late? Oil prices sold off a day after the Energy Information Administration (EIA) report as they seemed to focus on the crude oil build while trying to forget about the plunge in gas supply and spike in demand. Yet oil bears were getting a false sense of security with this week’s oil inventory rise, as it very likely that in the coming weeks oil supply may start to fall dramatically. Thus, OPEC’s suggestion by some unnamed OPEC source that if prices got high enough and supplies tight enough, they might relent and raise output.
Yet despite the oil selloff, there is a growing uneasiness about the supply side of the oil market while the demand side is coming in constantly higher than the bearish evidence. This is especially true of China, where demand has been breaking records despite talk of a slowing economy. Chinese Export data overnight seems to confirm that China’s economy might be stabilizing after weak data around the Chinese New Year holiday.
China’s exports for the month of March blew away expectations; coming in higher than expected while imports into China missed. China’s dollar-denominated exports increased by 14.2 percent for March from a year ago, beating Reuters expectations of a 7.3 percent increase. Imports were down 7.6 percent in March from a year ago, missing expectations of a 1.3 percent decline. Imports should improve next month as China moves to buy more U.S. goods. China as a side note, purchased a record amount of pork from the U.S., trying to replace food lost from the Asian swine flu.
Oil supply risk factors are running the highest they have in many years. Libya is just one of the supply side issues that we must deal with. The FT reports that “ The head of Libya’s national oil company Mustafa Sanalla, chairman of the National Oil Corporation, has warned that the country’s energy industry faces the gravest threat since the 2011 civil war after the latest outbreak of fighting.” “I am afraid the situation could be much worse than 2011 because of the size of forces now involved,” Mr. Sanalla told the Financial Times by telephone from his office in Tripoli.
“Unless the problem is solved very quickly, I am afraid this will affect our operations, and soon we will not be able to produce oil or gas.” He added that the loss of Libyan supplies would force the global oil price to rise.
Reuters reported that the fighting is continuing “Fighting (Friday) between the eastern force of General Khalifa Haftar and troops loyal to the Tripoli government of Prime Minister Fayez al-Serraj has displaced 9,500 people in the capital, the United Nations said.”
Venezuela, according to reports is in absolute chaos. There is no water and no electricity and reports about their oil production are probably overoptimistic. Canada is trying to fill the void, but pipelines are filled to capacity. Iran sanctions are taking their toll on the Iranian economy and President Trump is under pressure to push them over the edge by not granting sanction waivers to the Iranian oil buyers. Iran’s economy contracted by 1.5% last year and is expected to contract by 3.6% this year, according to the International Monetary Fund, compared to 3.8% growth in 2017 before sanctions were re-imposed by the Trump administration after the U.S. withdrew from the Iranian nuclear deal in May 2018 according to reports.
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The PRICE Futures Group
Senior Market Analyst & Author of The Energy Report
Contributor to FOX Business Network