The Energy Report 09/26/18
OPEC Is Ripping Us OFF
President Donald Trump called out OPEC on the world stage and helped ease the explosive rally in oil. The President, in a speech before the United Nations, said “OPEC and OPEC nations, are, as usual, ripping off the rest of the world, and I don’t like it. Nobody should like it. We defend many of these nations for nothing, and then they take advantage of us by giving us high oil prices. Not good.” This speech came as reports surfaced that India has agreed to go cold turkey and get off Iranian oil going to zero barrels when U.S. sanction go into effect in November. That very bullish development was offset somewhat by a report that pipeline company Plains All American is planning to open a 90,000 barrel a day crude oil pipeline expansion by the end of October, 6 months ahead of schedule and just in time to try to offset lost barrels from Iranian sanctions.
The President stole the show at the UN. While touting his accomplishments on the economy, he got laughed at but as most Americans’ that are in the stock market or now have a job know, the American People are crying all the way to the bank. He pointed out the evils of the rising tide of socialism.
He called out Iran and laid out the reasons for the Sanctions by saying that “Iran’s leaders sow chaos, death, and destruction. They do not respect their neighbors or borders, or the sovereign rights of nations. Instead, Iran’s leaders plunder the nation’s resources to enrich themselves and to spread mayhem across the Middle East and far beyond. The Iranian people are rightly outraged that their leaders have embezzled billions of dollars from Iran’s treasury, seized valuable portions of the economy, and looted the people’s religious endowments, all to line their own pockets and send their proxies to wage war.”
He called out the inherent evils of socialism, especially as related to Venezuela’s sad collapses. Trump said that “Currently, we are witnessing a human tragedy, as an example, in Venezuela. More than 2 million people have fled the anguish inflicted by the socialist Maduro regime and its Cuban sponsors. Not long ago, Venezuela was one of the richest countries on Earth. Today, socialism has bankrupted the oil-rich nation and driven its people into abject poverty. Virtually everywhere socialism or communism has been tried, it has produced suffering, corruption, and decay. Socialism’s thirst for power leads to expansion, incursion, and oppression. All nations of the world should resist socialism and the misery that it brings to everyone. In that spirit, we ask the nations gathered here to join us in calling for the restoration of democracy in Venezuela. Today, we are announcing additional sanctions against the repressive regime, targeting Maduro’s inner circle and close advisors.”
While those sanction did not include oil, they did not have to as Venezuela’s pilfered energy industry will continue to collapse.
Yet, oil remains above breakout levels in both the Brent and WTI Contracts. OPEC has little or no spare capacity and despite claims by the Saudis that they have plenty, research that we have read suggests that if they do it, is of the quality that might not help out global refiners. Distillate stocks will remain tight and the margin for error in the global market is less than it has ever been.
The American Petroleum Institute (API) report showed that U.S. Refiners are moving deeper into the maintenance season. The API reported that U.S. crude oil inventories increased by 2.903 million barrels in the latest week. This slowdown in runs led to a smaller than expected 0.949-million-barrel increase in gasoline supply and a surprise 0.949 million barrel drop in distillate supply. The report suggests that demand remains strong despite some worries about flat gasoline demand.
One might not think that with consumer confidence at 18 year high that some would be worried about gasoline demand becoming flat. With SUV sales going through the roof and demand just off all-time highs and a report that the Conference Board consumer confidence index hit 138.4 this month from an upwardly revised 134.7 in August, one would expect that gasoline demand would be through the roof. John Kemp at Reuters reports that is not the case. He writes that “the volume of traffic on U.S. highways has stopped growing, and with-it gasoline consumption, as rising prices curb driving behavior.”
Traffic volumes in July were 0.3 percent lower than a year earlier, after seasonal adjustments, according to the Federal Highway Administration. Traffic growth has been negative in two months so far this year, the first readings below zero since the start of 2014. Volumes were up by less than 0.3 percent in the three months from May to July compared with the same period a year earlier, down from annual growth of 2-3 percent throughout 2015 and 2016.
There has been a correlation between traffic volumes and the cyclical rise and fall in oil and gasoline prices since at least the early 1990s. The sharp decline in oil prices between the middle of 2014 and early 2016 provided a tremendous fillip to vehicle use. But as oil prices recovered over the last 30 months, that stimulus has faded, and traffic growth has slowed to a crawl. The average cost of gasoline purchased by U.S. motorists surged by more than 55 percent between February 2016 and September 2018.
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The PRICE Futures Group
Senior Market Analyst & Author of The Energy Report
Contributor to FOX Business Network