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The Energy Report 10/17/19

The Last of the Builds

The American Petroleum Institute (API) more than lived up to the whisper number on crude oil by reporting a massive 10.451-million-barrel increase in crude oil supply. Yet as impressive as the number night seem, it appears that it was mostly priced in causing only modest selling after its release. It is perhaps because the oil trade realizes that this build may be the last one we see for quite a while.

The refinery maintenance season has more than likely bottomed out and runs will start picking up, demanding more crude. This will come as U.S. crude imports will plummet due in part to OPEC production cuts in the aftermath of the attacks on the Saud oil facilities. OPEC output fell by 1.3 million barrels per day (mbpd) which was a 13% drop for the month of September. Those lost barrels might have found their way to U.S. shores and are going to be missing just when they normally would show up.

Those lost barrels might also mean that U.S. oil exports could soar. The demand for lighter barrels should keep the U.S. barrels moving even with higher tanker rates. At the same time, higher tanker rates may cause U.S. refiners to use more U.S. oil, leading to further drains on inventories. These draws should overwhelm the expected releases from the Strategic Petroleum Reserve. Crude oil draws may become substantial as we get into November when refiners are back to full capacity.

And in Houston we still have a problem. The problem of distillates. The API reported another 2.862 million barrel drop in supply. The demand for ultra-low sulfur diesel is exploding and due to the IMO rules that go into effect on January 1, there is a scramble for supply. Refiners are going to have to ramp up quickly to avoid spot shortages and offset the potential of a major diesel price spike.

 The API also reported a modest drop in gasoline supply. Gasoline will be well supplied.

And regardless of what you might think, this market still has significant geopolitical risk. Reuters reported that the U.S. carried out a cyber attack on Iran after the September bombing of Saudi oil facilities. The report, along with the recent missile attack on an Iranian tanker, means that it is likely we are going to see another attack on something related to oil soon. It might be a tanker or a refinery but make no mistake, it is coming. Iran has already said they know who carried out the missile attack and that they will retaliate.

The Saudi’s might be better prepared this time. The Wall Street Journal, in an exclusive, reported that, “The U.S. and Saudi Arabia have stepped up efforts to protect the kingdom’s oil production, holding talks on connecting Saudi missile defenses to U.S. systems and investigating new antidrone technologies, after an attack last month knocked out half of the country’s crude production.” The U.S. military is deploying an additional 2,000 troops, two squadrons of jet fighters, three new antimissile systems and other equipment to Saudi Arabia  in an effort to better prepare the kingdom to counter Iran. A series of incidents, including an alleged rocket attack on an Iranian tanker on Friday, have raised tensions in the region and prompted the oil industry to look at new security measures. Tehran has blamed a foreign government for the incident, which took place 60 miles from the Saudi port of Jeddah.”

Natural gas dipped as the cold weather forecast looked just a little less cold. Still your kids are going to need a coat on Halloween. Yet with the natural gas price falling, could your electricity bill disappear? Well maybe.

On an exclusive interview on Varney and Company on the Fox Business Network, US Energy Secretary Rick Perry said, “Americans are seeing cheaper electricity bills thanks to the big bet on liquefied natural gas (LNG).” Perry said that, “The U.S. currently brings roughly seven billion cubic feet of LNG to the market every day and the opening of a new facility in Louisiana will supply an additional three billion cubic feet.” “We’re driving down the cost of electricity in most places in America,” he said. “[With the exception of] some places like New York that forbid natural gas pipelines from being built across their state.” The U.S. currently brings roughly seven billion cubic feet of LNG. As I have said before, the most important fuel of the century will be LNG. You can see the interview on the Fox Business Network website.

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Thanks for all of your emails. I really do appreciate all of my loyal readers. If you are not getting my special updates, you had better call 888-264-5665 or email me at pflynn@pricegroup.com

HOT COMMODITY PODCAST!

In case you missed it! Phil’s guest appearance on the McKeany-Flavell Hot Commodity Podcast last Friday, September 20th talking about current energy market dynamics. LISTEN HERE!

Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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