The Phil Flynn Energy Report 10-29-2019
The crude oil market is under pressure, not so much because the market is oversupplied today, but it might be tomorrow. The International Energy Agency IEA with their consistent track record of underestimating demand is at again by cutting its oil demand growth figure by 100,000 barrels a day for both 2019 and 2020, claiming that despite the fact the oil market is viewed to be in balance, will face an oversupply in the New Year.
The IEA says that oil demand will grow to a record by a healthy 1.2 million barrels a day in 2020. The main reason for the reduction in growth is because of the IEA underreported demand in the U.S. in 2018. Or as the IEA put it, “in this report, for both 2019 and 2020 we have cut our headline oil demand growth number by 0.1 mb/d. However, the reduction for 2019 mainly reflects a technical adjustment due to new data showing higher U.S. demand in 2018 which has depressed this year’s growth number." So, in other words, they have lowered demand growth in the future because they underestimated in the past.
The IEA also says that “oil demand is supported by prices (Brent) that are more than 30% below year-ago levels." So what they are saying is low prices help cure low prices. They say that for 2020, a weaker GDP growth forecast has seen our oil demand outlook cut back to a still-solid 1.2 mb/d. Yes still very solid, to levels above 100million barrels a day, levels thought to be impossible to fathom. They might mention that low oil prices might actually spur more economic growth as well. That along with lower global interest rates and stimulus will have them raise their demand forecast again.
Monday, oil prices got off to rough start on those oversupply concerns after backing off from a one month high. Talk of a rebound in U.S. oil production! The Gulf of Mexico bounced back and some private forecasters reported a big crude supply increase in Cushing, Oklahoma. Genscape, the private forecaster, is calling for an increase of 1,510,988 for the week and mid-week 679,857. Macquarie Research is calling for a more modest build of 0.4MB at Cushing on Wednesday’s DOE report.
This is reinforcing calls for an increase in crude oil supply. Talk of low runs and exports that may have been delayed to weather are increasing some expectations of a large crude oil build. Yet there are the crude whisper numbers that are looking for another surprise crude draw this week. In fact, it may be substantial. Plus the API may have to give us a draw in tonight’s data because they want to match the Energy Information Administration’s draw last week.
Reuters is reporting that Saudi Aramco aims to announce the start of its initial public offering (IPO) on Nov. 3, three people with direct knowledge of the matter told Reuters, after delaying the deal earlier this month to give advisers time to secure cornerstone investors. Stay tuned for the next delay.
Natural gas is surging on an early winter blast! Yes, there was snow in Illinois overnight and I can’t say if I am happy about it or not. Yet it looks like it’s not going to get any warmer. Bret Walts, a Meteorologist with BAMWX.com a website geared toward servicing commodity traders and speculators, is warning that it is going to get colder. Bret says that “The overnight data – specifically the American data – trended substantially cooler in the week 2 period. We could see a brief dip in demand early in week 2, but the idea of another major blast of cold air late in the week 2 period has merit based on several pattern drivers. A couple of recent years that stand out as analogs for November are 2018 and 2013. These years are very different - and they diverged into winter (and aren't necessarily analogs for winter) - but similarities to those years both seem to be impacting the pattern. Current tropical forcing is similar to 2018, while the source of cold air and the overall high-latitude pattern is similar to 2013. Long story short, there is ample support for a notable cold pattern the second half of week 2 into the middle of November following a brief dip in demand Nov. 4 - 6.”
Freedom Gas is on the way to the world. The U.S. Department of Energy (DOE) issued an order yesterday to Venture Global Plaquemines LNG LLC approving exports of domestically produced liquefied natural gas (LNG) from its Plaquemines LNG project. The project will be located on the Mississippi River in Plaquemines Parish, La., approximately 20 miles from the Port of New Orleans.
Despite the weather pop, as we build more export terminals, LNG is going to be the next great energy export to an energy-hungry world. We will also be exporting cleaner air as we allow power generators and factories to get off of dirty coal.