Energy Markets Influenced By Impeachment, Bigger Oil Supply, Saudi Output Returning Fast

American Petroleum Institute reported a bigger than expected crude oil supply
Saudi oil output is returning faster than anticipated
Impeachment Inquiry
The Energy Report

The Energy Report

Energy Report 09-25-2019


The Impeachment Edition


Oil prices sold off hard as word spread that Speaker of the House Pelosi was going to announce a so-called “formal Impeachment” inquiry of President Donald Trump. Not an actual vote in Congress, mind you, where you might have to be held accountable for your vote, but the type of formal impeachment process where you can test the polls of your base that has been growing ever more disillusioned with your party.


Speaker Pelosi, giving in to the radical left-wing base of the party, said she is starting to realize at this point, despite the fact that impeachment will do harm and divide the country, they may have nothing to lose. The Democratic Party is divided, devoid of real ideas and vision and they do not have a viable candidate that can beat President Donald Trump. So why not impeach. Russian collusion failed so why not look to Ukraine collusion.


Of course, the market’s vote on impeachment was clear. The Dow and the S&P reversed course from higher to sharply lower. The market fears the excessive spending and higher tax proposals and increased government control of private business.


The Democrats tried to take back the political stage from President Donald Trump whose speech at the UN was spot on and stirring and highlighted the accomplishments of his administration. The Democrats could not allow that to be the headline.


Oh sure, oil indeed did have other reasons to fall. After the close, the American Petroleum Institute reported a bigger than expected crude oil supply increase in crude supply of 1.4 million barrels. Some of that build was storm-related and some were because of a big 2.3-million-barrel increase in Cushing, Oklahoma. The API also reported that gasoline supply increased by 1.9 million barrels with distillates by 2.2 million barrels. Yet the market might not have taken that report as bearish as it did if there were not this new threat of impeachment hanging over the market’s head.


The other bearish factor weighing on prices are reports that Saudi oil output is returning faster than anticipated. Bloomberg News reports that Saudi Arabian sources say that total production capacity was restored to more than 11 million barrels a day about a week ahead of schedule. While that is bearish news there is still no word on whether their damaged oil processing plant can do the same. Experts I talk to say that that will be way behind the optimistic projections by Saudi Arabia.


S&P Global Platts is reporting that there is an, “apparent shortage in supply of light Saudi crude to Asian refiners has boosted demand for distillate-rich grades in the global spot market, setting the tone for light/heavy crude price spreads to widen in the fourth quarter. Platts says that “Although multiple Saudi crude customers in South Korea, India and Japan claimed that their Saudi term crude supply remains safe, many other refiners in Asia have said that some of their term barrels for lighter Saudi grades have been affected by the attacks. In China, for one, at least three state-run refineries expect either delays or reduction in light sour Saudi crude shipments in Q4 due to the recent output disruption, refinery sources with direct knowledge of the matter told S&P Global Platts previously."


A refinery in South China operated by state-run Sinopec told Platts that it received a notice from Saudi Aramco stating that it was unable to supply Arab Extra Light crude, and that the Chinese refiner's monthly contractual Arab Light crude supply will be switched to Arab Heavy as a substitute grade for September loading. In addition, "Arab Extra Light, due for October loading, will be replaced by Arab Medium," a company source said. "The Arab Light and Arab Extra Light will be generally switched with Arab Medium/Heavy, but this will also depend on the needs from the refinery," a source at another Sinopec-operated refinery in South China said.


No worries, the Saudi Aramco IPO, in fact, is expanding. The Wall Street Journal reported that “After attacks on its oil infrastructure, Saudi Arabia is moving forward with the much-  anticipated initial public offering of its state-owned oil company and considering a proposal to offer investors a much bigger stake in the company than previously planned, people familiar with the matter said. The Saudi Royal Court and its advisers have been debating an eventual float of as much as 10% of the Saudi Arabian Oil Co., known as Aramco, doubling the country’s longstanding public intention to list just 5%, according to these people.” But can they get Iran to quit blowing up their stuff.


Beside impeachment risk we have geopolitical risk. Iran’s President speaks to the UN today. He is laying out the possibility that he will talk to President Trump but only if Trump rejoins the nuclear pact and lifts sanctions. Fox News, in an exclusive interview with the Iranian President reported, “in an exclusive interview, the "Fox News Sunday" Fox News' Chris anchor pressed Rouhani, saying other nations that signed onto the controversial deal have since said they agreed with the stance that Trump took, citing the United Kingdom, France and Germany, before asking if there was a chance the U.S. and Iran could reopen talks.” He said, "Well, once we carried on negotiations with the United States of America for two years, and during a 17-day period, the foreign minister of the Islamic Republic of Iran and the U.S. Secretary of State had continuous talks without returning to their countries. It was extremely difficult, but we did reach an agreement which was signed, and it was enshrined in the United Nations Security Council resolution, and without a valid reason or cause, the United States left this agreement." "So, it took away the foundation of the needed trust. I think more than the issues it touched upon, the most basic needed issue is trust, and Mr. Trump damaged the trust between the two countries. So, this is very important." Rouhani then suggested a keyway to rebuilding trust would be removing sanctions against his country, which he described as "a type of terrorism."


For oil, any sign that Iran may talk to the U.S. would be very bearish. We get the EIA today. We will look to see if its in line with API.




About the Author

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