Is the oil market actually as tight as people think it is?
- China incentivized to release from SPR to keep prices low.
- Saudi and Russia should want to keep lid on prices so that China and India (consumers) stay happy
- US production hasn’t increased much beyond 11 mbpd but it could

OPEC oil output falls in February on Saudi additional cut - survey
https://www.reuters.com/article/us-oil-opec-survey/opec-oil-output-drops-in-february-as-saudi-makes-further-cut-survey-idUSKCN2AT2CK

UAE says OPEC adding 1.5 mil b/d in April hinges on vaccine rollout, demand recovery
https://www.spglobal.com/platts/en/market-insights/latest-news/oil/022821-uae-says-opec-adding-15-mil-bd-in-april-hinges-on-vaccine-rollout-demand-recovery

India's daily gasoline sales in February rise 1.5% y/y, diesel sales fall 5.3%
https://www.reuters.com/article/india-oil-sales/indias-daily-gasoline-sales-in-february-rise-15-y-y-diesel-sales-fall-53-prelim-data-idUSKCN2AT1Y4
- India has a lot of potential new drivers
- Driving, plastic purchases, flying - all areas where oil demand can increase

U.S. report on Khashoggi weighs on Saudi shares
https://www.reuters.com/article/mideast-stocks-int/u-s-report-on-khashoggi-weighs-on-saudi-shares-idUSKCN2AS0ER

For the Biden Administration, Saudi Arabia Is Both an Ally and a Problem
https://www.haaretz.com/us-news/.premium-for-the-biden-administration-saudi-arabia-is-both-an-ally-and-a-problem-1.9578780

- Report didn’t show anything revelatory, probably just a political release

China’s Oil Reserves Are Close to Reaching Storage Capacity
https://news.yahoo.com/china-oil-reserves-close-reaching-034719436.html

COLUMN-Asia's physical crude oil isn't as tight as Brent pricing suggests: Russell
https://www.reuters.com/article/column-russell-oil-asia/rpt-column-asias-physical-crude-oil-isnt-as-tight-as-brent-pricing-suggests-russell-idUSL2N2KZ0BX 

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit energyweek.substack.com

Episode 146 - How tight is the oil market?

Ellen Wald and Ryan Ray discuss the week's events in energy, and what it all means to you. 

energyweek.substack.com

News

Goldman Sachs expects ‘all time high’ oil demand to spur large deficits, boosting prices https://www.cnbc.com/2023/07/24/goldman-sachs-expects-all-time-high-oil-demand-will-boost-prices.html - expect demand to rise by 2 million bpd from India and China - Is this coming from OPEC via China? - IEA says global demand will increase by 2.4 million bpd - Will Saudi Arabia increase production as a result? Oil markets are still volatile, U.S. energy chief says, calling for further supplies https://www.cnbc.com/2023/07/22/-we-want-oil-prices-to-come-down-says-us-energy-secretary-general-.html - Prices area actually surprising stable right now - Granholm says Biden wants prices to come down because people "can't afford the premium." Anticipation of Rate Cuts Could Lead Oil Prices Higher https://etfdb.com/leveraged-inverse-channel/rate-cut-anticipation-could-lead-oil-prices-higher/ - If interest rates fall, companies will borrow more and expand causing demand to rise - If interest rates fall, oil companies might be able to borrow money and expand drilling IF banks are willing to lend to them - Can't depend on the Fed to start cutting interest rates while inflation is above 2% Oil prices rise as tight supply counters expected rate hikes https://www.reuters.com/markets/commodities/oil-rally-takes-breather-ahead-fed-ecb-rate-hikes-2023-07-24/ Russia Defies Sanctions by Selling Oil Above Price Cap https://www.wsj.com/articles/russia-defies-sanctions-by-selling-oil-above-price-cap-bae1c271 - Brent is at $82/barrel. Spread gets too large for people to ignore going to Russia. - Does this mean that the system for selling and transporting Russia oil without touching western entities is well developed enough that the price cap can be totally evaded and it is meaningless? Or does it mean that the penalties for violating the price cap aren't being enforced or aren't strong enough? - Sanctions enforcement isn't immediate - it can take 3+ years to get evidence and apply fines - “The West has true pricing power,” he said, adding that the cap could be lowered to between $20 and $30 a barrel. - But if price cap is set too low, Russia will call the bluff and price oil at what the market is pricing its oil at, and buyers can take it or leave it. Global Hunt for Crude Sends Offshore Oil Stocks Soaring https://www.wsj.com/articles/global-hunt-for-crude-sends-offshore-oil-stocks-soaring-8e4f77a9 - Exxon, Chevron stocks not doing well, but stocks of offshore exploration and service companies are booming. Noble, Transocean, etc. are booming with lots of offshore exploration.  - Can take awhile to find what you need, but good for future, 2026, 2027, 2028 Oil and Gas Companies to Face Stricter Regulations and Higher Royalty Rates for Drilling on Public Lands https://www.energyportal.eu/news/new-rules-for-oil-and-gas-leasing-raise-rates-energy-companies-pay-to-drill-on-public-lands-8/84743/ - The increased royalty rate is expected to remain in place until August 2032, with an estimated cost increase of $1.8 billion for oil and gas companies during that period.- The proposed rule, which raises royalty rates to 16.67% from the previous rate of 12.5% Link to Energy Infrastructure Webinar: https://zoom.us/webinar/register/WN_oyqmDS1aRRaqoUG0-gfVag#/registration 

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit energyweek.substack.com

231 - Is global demand set to increase?

Oil slides more than 1% as Chinese GDP dents demand hopes https://www.reuters.com/business/energy/oil-slips-after-libya-resumes-output-china-data-eyed-2023-07-17 - GDP grew 6.3% year-on-year in the 2nd quarter, compared with analyst forecasts of 7.3% - what analysts were forecasting such high growth? - slow correction where expectations come back down to reality China's June industrial output rises 4.4%, retail sales up 3.1% https://finance.yahoo.com/news/chinas-june-industrial-output-rises-020809002.html - China's industrial output grew 4.4% in June from a year earlier, unexpectedly accelerating from 3.5% seen in May - Retail sales grew 3.1% in June, slowing from a 12.7% jump in May. Analysts had expected growth of 3.2%. - Are the kind of okay numbers from China signals that the Chinese economy is actually much worse? Chinese Oil Demand Doesn’t Make Sense https://www.wsj.com/articles/chinese-oil-demand-doesnt-make-sense-cbc02a44 - "Either China’s economy will accelerate rapidly in the second half—a prospect that currently looks unlikely—or oil demand will revert to more regular patterns, dragging global consumption and, potentially, prices down with it." *** Really???*** - Could there be a mismatch between petroleum imports quotas and what they actually need. - "China doesn’t regularly publish petroleum inventory data as the U.S. does, so it is difficult to say for sure how much diesel might be sitting in storage somewhere." Oil Bulls are Getting it All Wrong, Wall Street Veteran Warns https://finance.yahoo.com/news/oil-bulls-getting-wrong-wall-101242402.html - “The bulls got it all wrong,” said Ed Morse, the bank’s veteran head of commodities research. “The world is still waiting for a real Chinese recovery, Europe is in recession and we still don’t know if the US will have a hard landing.” - Citi's call for oil's summer average was $83/barrel. More realistic that the $97/barrel calls. But it's still off from $78... Japan to Propose Global Natural Gas Reserve to Avoid Shortages https://finance.yahoo.com/news/japan-propose-global-natural-gas-040004888.html - Can see why indiv countries would want to do this, but will global natural gas supplies be helpful the same way global oil reserves are when natural gas isn't traded like oil is? - Also, higher nat gas prices make Permian wells more valuable - Regional natural gas storage frameworks make much more sense Dirty and Sludgy Oil Runs Hot in Asia as Saudis Cut Supply Back https://finance.yahoo.com/news/dirty-sludgy-oil-runs-hot-051227587.html - Less light oil on the market from Saudi Arabia and UAE has made buyers look for heavy, sour crudes - Urals price is now up close to price cap price - Was this intentional by Saudis? 

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit energyweek.substack.com

Chinese oil demand can't support prices

Biofuels are displacing petroleum-based distillate fuel oil consumption on the West Coasthttps://www.eia.gov/todayinenergy/detail.php?id=57040 - renewable diesel = diesel made from  - biodiesel used as well - petroleum distillate consumption down on west coast in 2022 but biodiesel consumption up - unique to west coast NATIONAL AVERAGE SEES LITTLE CHANGE, GASOLINE DEMAND PLUMMETS AFTER SURGING FOR JULY 4  - Gasoline demand soared on July 4 but declined since then - Gasoline prices went down going into July 4 but have basically remained stable since then - "Implied gasoline demand, a proxy for retail demand, unsurprisingly jumped to 9.6 million barrels as motorists hit the road for July 4." - "gasoline inventories fell 2.5 million barrels"  Oil dips on Chinese and U.S. data, but OPEC+ cuts limit fall https://www.reuters.com/markets/commodities/oil-eases-ahead-china-us-data-opec-cuts-support-market-2023-07-10/ - Lots of Chinese data coming out later this week - Will the market tighten in H2 2023? China's economy will turn around at some point, but will it be this year?  - China's trade with US and Europe is down but is Russia really a replacement? Depends who you ask. Iran Seizes Commercial Tanker in Persian Gulf https://www.voanews.com/a/iran-seizes-commercial-tanker-in-persian-gulf-/7170938.html - Military incident in Persian Gulf including US Navy firing on Iranian vessels did not cause oil market to jump at all - Do people not care about tanker security in the Persian Gulf anymore? Special Guest Kunal Patel from the Dallas Fed Q2 Energy Survey https://www.dallasfed.org/research/surveys/des/2023/2302 - price forecasts of producers are different from other industries. Think price will be in $80s by end of year - credit conditions: 24% of small E&Ps; said credit conditions are having a major impact. Large E&Ps; have more sources of credit. - costs in the oilfield: the larger the firm you are, the more pricing power you have, both with services and materials - larger firms can take advantage to get lower costs but smaller E&Ps; are still facing higher costs - potential decreases in cost in H2 - Contracts with rigs and suppliers are the issue - if firms locked in contracts in 2022 then prices are higher even if prices are going down now. When the contracts were signed is driving the costs - Oil producers in the US think that global oil consumption has slightly underperformed this year what they expected at the start of the year. 

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit energyweek.substack.com

230 - Biofuel displacing diesel | Kunal Patel from the Dallas Fed

Oil falls amid China growth uncertainties https://www.reuters.com/business/energy/oil-prices-come-off-earlier-gains-banks-cut-china-growth-forecasts-2023-06-19/ - the issue is headwinds, but is China's economy really that bad - the real issue is that expectations for China's great economic reopening haven't materialized.  - China's demand growth was baked in and now that it's coming in below expectations - at the same time...China's refineries processed second most oil in May on record Column: China stored massive volume of crude oil in May, giving it options https://www.reuters.com/markets/commodities/china-stored-massive-volume-crude-oil-may-giving-it-options-russell-2023-06-19/ - China added to crude oil stockpiles at the fastest rate in nearly three years in May, as robust imports outweighed near-record refinery processing. Toyota unveils sweeping plans for new battery tech, EV innovation https://www.reuters.com/business/autos-transportation/toyota-market-next-gen-battery-evs-2026-built-by-new-ev-unit-2023-06-13/ - Solid-state batteries can hold more energy than current liquid electrolyte batteries - Toyota said it aims to launch next-generation lithium-ion batteries from 2026 offering longer ranges and quicker charging. - This could be much better for the modern model of driving. - While the range would be longer and the charging time faster and more palatable, but the weight might still be an issue New Land Grab by Oil Giants Is Deep Underground https://www.wsj.com/articles/new-land-grab-by-oil-giants-is-deep-underground-34cd5e97 Welcome Back Dr. Dean Foreman, Chief Economist for Texas Oil and Gas Association! www.txoga.org - Are we heading towards 13 million barrels per day of oil production from the US? It's not getting there. - Many states don't have the same activity levels as they did pre-pandemic - Texas is more important than ever for oil production - natural decline rates in Texas are less than in other places - Market is structurally tight, esp when you look at inventory levels - Why is OPEC cutting? Each time, Fed Reserve contemplates a rate hike, economic uncertainty results. -  Going back to the OPEC cuts last year was to offset monetary policy from Fed. - The China factor? China's economy is coming back but slowly over the course of the year. - Natural gas production is at all time highs - How much is flowing into global markets? Storage levels of natural gas are high in Europe and the U.S. - Seasonal and regional markets for natural gas remain. - Permian Basin most of the natural gas is associated - How to incentivize natural gas drilling when prices are so low - Appalachian region is constrained by pipelines - Record level of natural gas exports, but really strong production and really strong consumption. Productivity levels have held this up.  - US is sitting at under $3 per mbtu, Europe is $9/$10 per mbtu - Hot summer could pressure the LNG situation. But also a comeback in China's economy could pressure the LNG situation. China gave up many cargoes of LNG that it had contracted for to Europe because they were willing to pay super high prices 

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit energyweek.substack.com

229 - Oil falls amid China growth uncertainties | Dr. Dean Foreman returns

Commodities Slide as Investors Bet on Economic Slowdown https://www.wsj.com/articles/commodities-slide-as-investors-bet-on-economic-slowdown-233a6d3 - if prices trend down to the $60s or $50s by October then Shale producers might curb production plans Saudi Arabia Springs 1 Million b/d Cut in Opec Megadeal https://www.energyintel.com/00000188-857f-d6e7-a9ba-efffca560000 - will Aramco take oil from storage if customers want more oil than they have available from production? Saudi Arabia Cuts Oil Output After OPEC Members Clash Over Quotas https://www.wsj.com/articles/saudi-arabia-some-opec-members-clash-over-oil-production-quotas-87f43f0c - Angola vs. Saudi Arabia over a reduction in baseline quotas - 2024 new baseline quotas that more accurately reflect capacity What oil production cuts were agreed at OPEC+ meeting? https://www.reuters.com/business/energy/how-opec-deal-cuts-oil-supply-until-end-2024-2023-06-05/#:~:text=The%20OPEC%2B%20alliance%20on%20Sunday,a%20combined%2040.46%20million%20bpd - Does OPEC know something about China's demand that the rest of the market doesn't? China is drilling a 10,000-meter-deep hole into the Earth https://www.mining.com/web/china-is-drilling-a-10000-meter-deep-hole-into-the-earth/ - "The project will provide data on the Earth’s internal structure, while also testing deep underground drilling technologies, according to China National Petroleum Corp., which is spearheading the project." - Is this REALLY just a scientific and technical venture? Or is it cover for something military? - How much oil and gas would they have to get out of 457 days of drilling? - could it be for rare earths like lithium? An Inflexible EPA Rule Will Hamper Goals to Reduce Methane Emissions https://themessenger.com/opinion/an-inflexible-epa-rule-will-hamper-goals-to-reduce-methane-emissions 

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit energyweek.substack.com

Episode 146 - How tight is the oil market?

Download our free app to listen on your phone