The Energy Report
Iran’s Supreme Leader Ayatollah Ali Khamenei says that Iran delivered a “slap to the US’s image as a superpower.” Shooting missiles and not hitting anything major makes you a bit slap happy. Yet what Iran’s so-called slap did do to the oil market, was take out the Iranian risk premium because after their ill-fated attack and the mistaken downing of the Ukrainian passenger jet, it has forced Iran to be on its best behavior because there is nothing more dangerous than a superpower that you just slapped in the face. Yet despite the drama, the oil market is already starting to look beyond Iran and even beyond a historically high increase in U.S. petroleum supply to a world where demand growth prospects are better than they have been. Not only do you have the signing of the Phase One U.S.-China trade accord, you finally have the United States of America, the United Mexican States, and Canada free trade agreement flying through the Senate, and you had economic data out of China that suggests that their record demand for oil and natural gas should continue.
Even as China’s economy grew at 6.1%, its slowest pace in nearly three decades in 2019, there are more signs that things in China are turning around. Today it was reported that China’s industrial output expanded to 5.7% in 2019. China.org said that the growth rate was higher than that in the first 11 months of 2019, according to the National Bureau of Statistics (NBS). In December alone, China’s industrial output expanded 6.9 percent year on year, up 0.7 percentage points from November. China’s industrial output, officially called industrial value-added, is used to measure the activity of designated large enterprises with an annual business turnover of at least 20 million yuan (about 2.8 million U.S. dollars).
This better than expected reading, along with the signing of the U.S.-China trade deal, will boost demand expectations. Not only for China, but globally, as the dark clouds of the trade war are beginning to brighten.
Tsvetana Paraskova of OilPrice.com reports that “India May Significantly Boost U.S. Oil Imports” She says that “India and the United States will discuss India’s energy security and the Asian country buying increased volumes of U.S. crude oil when U.S. President Donald Trump and Indian Prime Minister Narendra Modi meet later this year, Financial Express reported on Thursday, quoting a senior official.
President Trump is expected to visit India later this year, but no specific date has been set for the visit yet. India has already boosted its imports of U.S. crude oil after the United States ended the waivers for Iranian oil customers when it stepped up the sanction pressure on Iran’s regime last year. India was until recently Iran’s second-largest oil customer after China, but the U.S. sanctions on Iranian oil exports made India stop purchases of oil from Iran as refiners did not want to risk secondary U.S. sanctions if they continue doing business with Tehran. Earlier this month, three officials with direct knowledge of the matter told Hindustan Times that India plans to double the volume of its oil imports from the U.S. as it looks to reduce its over-reliance on imports from the Middle East.”
Natural Gas bulls had a brief shining moment after the Energy Information Administration reported a bullish weekly storage withdrawal. Yet predictions of spring in February had traders selling into the pop while looking to dust off their golf clubs. The EIA reported that supply fell by 109 bcf putting stocks at 3,039 Bcf. Supply is 494 Bcf higher than last year at this time and 149 Bcf above the five-year average of 2,890 Bcf. At 3,039 Bcf, the total working gas is within the five-year historical range.
Natural gas traders had better not fool with mother nature.
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The PRICE Futures Group
Senior Market Analyst & Author of The Energy Report
Contributor to FOX Business Network