Crude, real and imagined

Daily Energy Market Analysis

Crude prices got whacked on oil supply, real and imagined. Talk of futures strategic petroleum reserve releases along with signs of real increases of production in some OPEC countries sent oil into the basement. Weak economic data out of China and some warnings about trade wars by the International Monetary Fund did not help and it overshadowed the reality that U.S. oil supplies will probably fall dramatically again this week. Even talk by Russian President Vladimir Putin, who suggested that the United States could collude with it on oil prices, was a price point negative.

Beyond all the media outrage on the Trump-Putin press conference, there also was Bearish news and the offer of collusion with the Trump Administration. Putin said that “I think that we as a major oil and gas power, and the United States as a major oil and gas power as well, we could work together on the regulation of international markets because neither of us is actually interested in the plummeting of the prices.”

He went on to say that “nor are we interested in driving prices up because it will drain a lot of juices from all other sectors of the economy, so we do have space for cooperation here.” 

Of course, there was a lot of media outrage after the press conference as President Donald Trump seemed to want to dismiss Russian interference in the U.S. election. That brought a statement by the Intelligence Agency that said “The role of the Intelligence Community is to provide the best information and fact-based assessments possible for the President and policymakers. We have been clear in our assessments of Russian meddling in the 2016 election and their ongoing pervasive efforts to undermine our democracy, and we will continue to provide unvarnished and objective intelligence in support of our national security.” 

Let us talk real oil. Not only did we see reports that Saudi Arabia was offering a couple of tankers of oil for sale, but Bloomberg reported that Iraqi crude exports jumped 6% in the first half of July after OPEC countries said they would start adding more crude to the market to meet demand. Total exports rose to 4.05m b/d in the first half of July versus 3.839m b/d for the entire month of June. Oil ignored another drop in the Cushing, Okla., delivery hub, as reported by private forecasters and expectations for another week of record gasoline exports and distillate exports.

The IMF is raising warning signs that could have a negative impact on future oil demand. The IMF “continues to project global growth rates of just about 3.9 percent for both this year and next, but judges that the risk of worse outcomes has increased, even for the near term. Growth remains generally strong in advanced economies, but it has slowed in many of them, including countries in the euro area, Japan, and the United Kingdom. In contrast, GDP continues to grow faster than potential and job creation is still robust in the United States, driven in large part by recent tax cuts and increased government spending. Even U.S. growth is projected to decelerate over the next few years, however, as the long cyclical recovery runs its course and the effects of temporary fiscal stimulus wane. For the advanced economies, we project 2018 growth of 2.4 percent, down 0.1 percentage point from our April World Economic Outlook projection. We maintain an unchanged forecast of 2.2 percent growth in those economies for 2019.”

Bottom line, we are seeing the increased volatility that we expected to see. While we start to hear talks of future oil releases, it really will only provide short term relief and not solve the fact that this market is going to be trustfully undersupplied due to years of underinvestment.

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor.