The Phil Flynn Energy Report 9/17/19
President Trump said he was locked and loaded in the tweet but later seemed to suggest that there may be no response at all to the attack.
Crude oil prices are trying to stabilize after the record-breaking session yesterday as traders are coming to grips on an attack of Saudi oil fields and processing plants that was not supposed to happen. The market not only has to asses when the said oil production will come back online but also reassess global oil market risk.
For the production part, reports coming out of Saudi Arabia are mixed. There are some reports that some Saudi production is coming back online now but other reports that it will take weeks or months before the Saudis can restore full production. Bloomberg News is reporting that Saudi Aramco notified at least four customers that some crude deliveries in early October will be delayed to later in the month after attacks on its facilities cut output, though they’ll still receive their full contracted volumes, according to people with knowledge of the matter. So no force majeure yet, but maybe soon.
In the meantime, oil is selling off due to the pressure of margin short covering and the fact that there does not look like there is going to be an immediate military response to the attack.
While President Trump tweeted yesterday that he was “locked and loaded”, today the market assumes he does not want to pull the trigger. The United States was still investigating if Iran was behind the Saudi strikes, Trump said but, “it’s certainly looking that way at this moment”. Yet at the same time he said, “I’m somebody that would like not to have war.”
Yet now hopes for diplomacy with Iran are seemingly dead. Iran’s supreme leader said that, “there will be no talks with the U.S. at any level.” He said that, “all officials in the Islamic Republic unanimously believe” this. Probably because he told them to unanimously believe it.
The pullback from the risk of a military response is sucking some of the risk premium out of the price of crude oil, at least until we get another headline. That headline might be reports that both the U.S. and Saudi Arabia now believe “very high probability” this weekend’s attacks featured low altitude cruise missiles and drones launched from an Iranian base near the border with Iraq. There are growing questions as to why the attack on the Abqaiq complex happened in the first place. The Saudis have always touted the security of the heart of their energy production and this failure to protect it has the world feeling less secure about security of oil supplies around world.
U.S. oil supply is also tightening. Private intelligence services are reporting big drops in Cushing, Oklahoma crude supply. That is more than likely signaling another big drop in U.S. oil supply in this week’s reports. Yet with global supply tightening, the world’s strategic reserves stand locked and loaded to release supply but at this time are not ready to pull the trigger. It was reported that Secretary of Energy Rick Perry said it’s too soon to say whether the U.S. should release oil from the Strategic Petroleum Reserve.
Reuters reported that, “OPEC Secretary General Mohammad Barkindo discussed the oil market with the head of the International Energy Agency, Fatih Birol, on Monday after the attacks on Saudi oil facilities, an OPEC source told Reuters. The two men expressed their satisfaction that “the situation has been brought under control by the Saudi authorities,” and agreed to continue to monitor the market and keep in regular contact over the next couple of days, the OPEC source said. With global oil inventories plentiful and no signs of a shortage yet, OPEC does not need to formally discuss taking any action for now, two other OPEC sources said. “It’s still early to talk about it,” one of them said. We are awaiting update from Energy Minister Prince Abdelaziz on the impact of the attacks and when they can get things back to normal.
This of course makes the Federal Reserve decision both easier and more difficult. It is easier to justify a rate cut with the increased risk to the global economy due to an oil price spike. Yet the Fed may find it difficult to explain whether the attack on Saudi Arabia is a bigger threat to growth or is it to the inflation bump they have been hoping for.
I also hope you took my advice and filled you gas tank right away. If you did not, you are already paying a much higher price for gasoline. AAA reported that the U.S. national average gas price spiked to $2.592, 3 cents a gallon higher than before the spike. In some areas the spike was more pronounced and we will see more gas price increases in the coming days.
Technically speaking the crude oil market looks like we have broken out on the upside. We are in a buy the breaks mode with option protection.
News will be critical to oil moves in the next 24-48 hours. It is critical that you stay tune to the Fox Business Network for the latest breaking developments where you can Get the Power to Prosper. Also sign up for my special updates. Call me at 888-264-5665 or email me at firstname.lastname@example.org.
The PRICE Futures Group
Senior Market Analyst & Author of The Energy Report
Contributor to FOX Business Network