US oil stocks fall more than expected on strong export, refinery demand -EIA
Crude oil stockpiles in the United States decreased by 10.6 million barrels to 422.9 million barrels in the week ending August 25, the US Energy Information Administration said in its weekly report on Wednesday. Total commercial petroleum inventories were down by 8 million barrels. Crude oil refinery inputs averaged 16.6 million barrels per day during the same week, 173,000 barrels per day less than the previous week’s average. Gasoline production rose last week, averaging 10 million barrels per day, while refineries operated at 93.3% of their operable capacity in the same period. Meanwhile, crude oil imports averaged 6.6 million barrels per day last week, down by 316,000 barrels compared to the previous week. NN: Reality is oil stockpiles falling because production is less than demand….. Enjoy
(Reuters) – A look at the day ahead in U.S. and global markets by Amanda Cooper. One of the overarching market themes this year – aside from the hype around artificial intelligence – has been investors avidly building up bets on the Federal Reserve finally announcing an end to its cycle of rate hikes, only to have that optimism dashed. There’s no doubt that the U.S. central bank is nearing the end of its mission to wrestle down inflation. Headline consumer price pressures are rapidly abating, thanks to a wholesale retreat in food and energy prices. Headline inflation in July rose 3.2% on an annual basis – a far cry from last June’s 9.1% – and nearing the Fed’s 2% target.
There’s just a couple of easily identifiable snags.
Inflation as reflected in the Fed’s preferred data point – the core personal consumption in expenditures (PCE) index – is running at 4.1%, having peaked February 2022 at 5.4%. The economy isn’t generating jobs as quickly as it was a year ago, but it’s still set to add another 170,000 in August, which will mean more than 25 million workers will have been added to non-farm payrolls since the depths of the COVID pandemic in April 2020. And crucially, Fed Chair Jerome Powell has once again reinforced the “higher for longer” mantra that has underpinned most of his, and his officials’, communications this year, no matter how much market participants have bet otherwise. The dollar, which economist Mohammed El-Erian described earlier this year as “the cleanest dirty shirt” among world currencies, is set for a 2% gain in August, marking its strongest monthly performance since May, thanks in large part to anticipation of at least one more Fed rate hike before 2023 draws to a close. U.S. two-year Treasury yields, the most sensitive to shifts in expectations for Fed monetary policy, posted their largest weekly rise in two months last week, after Powell’s comments at the annual Jackson Hole Economic Policy Symposium.
He vowed to tread carefully with rate rises and rely on incoming data, but was clear about the endgame.”It is the Fed’s job to bring inflation down to our 2% goal, and we will do so,” he said.
While some asset managers are keeping the faith that the Fed is at the end of the cycle, speculators are taking no such chances. In the week to Aug. 22, data from the Commodity Futures Trading Commission showed non-commercial market participants expanded their bearish holdings of U.S. two-year Treasury note futures to the most since at least 1990, reflecting a bet that two-year cash yields will continue to rise. Money markets show traders believe the Fed has one more hike in the pipeline this year, which would bring its target rate to a range of 5.50%-5.75%, from 5.25%-5.50% right now. Just three months ago, when rates were at 5.125%-5.37%, markets were betting on a year-end range of 5.00%-5.25%, implying at least one rate cut this year. This week, investors get a dose of top-tier data to help shape their view on the Fed’s next move. A second read of U.S. gross domestic product is due on Wednesday, while core PCE and August non-farm payrolls arrive on Thursday and Friday, respectively. BlackMask Pod Cast:
United States crude inventories decreased more than expected last week, the American Petroleum Institute (API) said in its weekly report that US crude stockpiles dropped by 11.49 million barrels. Meanwhile, reserves in the industry hub in Cushing, Oklahoma, fell by 2.23 million barrels. The report is also said to have shown a rise of 1.4 million barrels in gasoline inventories and a 2.46-million-barrel jump in distillate stockpiles. Inventories are falling despite an increase in crude production.
“Ongoing strength in refining activity and crude exports have encouraged a solid draw to oil inventories, while peak summer refinery runs have resulted in builds for both gasoline and distillates,” said Math Smith, lead oil analyst for Americas at Kpler.
Crude stocks at the Cushing, Oklahoma, delivery hub fell by 3.1 million barrels last week – the biggest weekly draw since October 2021 – as barrels are pulled to the Gulf Coast to meet peak summer refining needs and export demand amid OPEC+ production cuts. NN: Do not let them shit you. Demand is soaring and production is peeking. forget the china is or is not. China is happening. Want proof? Look at the inventory numbers. Every week inventories drop by millions of barrels, They did not lose that much oil. They consumed it.
Major US stock markets extended gains on Tuesday following the release of a fresh batch of economic data. Previously, the US Bureau of Labor Statistics reported that job openings in the United States declined by 338,000 in July compared to the previous month, to hit 8.8 million. At 10:34 am ET, the Dow Jones gained 0.48% or 165 points, while the NASDAQ 100 added 1.5% and the S&P 500 rose 0.88%. At the same time, the euro improved by 0.25% against the dollar, selling for $1.08459. NN: As this rally continues we will begin shorting operations. Be sure you are adequately funded.
Experts predict that illnesses like RSV and the flu, which are both at very low levels now, will settle back into their seasonal patterns this year. Covid-19 cases could have a winter surge, but many experts don’t expect it to reach the heights of recent years unless the coronavirus throws us a wild card in the form of a new variant. Earlier this year, experts who study the evolution of the virus predicted that there was a 10% to 20% chance of that happening within the next two years. And there’s more good news: There are new tools to help protect the most vulnerable, in the form of vaccines and antibodies. Some of these are now available, with other expected to arrive in the weeks ahead. “We have three respiratory viruses that we think will be the major players for wintertime colds: Covid, flu and RSV. And for the first time in human history, we have vaccinations against all three of them,” said Dr. Buddy Creech, a pediatric infectious disease specialist at Vanderbilt University. However, he noted, “A shot is only so good if it gets into your shoulder.” Experts say there will be major challenges ahead to make sure everyone who needs these vaccines has access to them and feels comfortable getting them.
States gear up for this fall’s triple threat of respiratory viruses: Covid-19, flu and RSV The government is no longer purchasing Covid-19 vaccines for all, which means that cost will be passed on to insurers and potentially to patients themselves.Some of the questions about who will pay for the shots and their administration can’t be answered until the latest version of the vaccine is approved by the US Food and Drug Administration and recommended by the US Centers for Disease Control and Prevention.
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Conspiracy Theorists Trying to Create Panic
The delivery system for getting vaccines to adults is lacking, too. “We still don’t have a robust system in place for adult immunization advocacy and delivery and how to expand beyond the existing pharmacy chains and hospitals,” said Dr. Peter Hotez, co-director of the Texas Children’s Hospital Center for Vaccine Development. “This is especially true in rural and low-income areas. “This, and the fact that antivaccine activism has increased during the Covid pandemic, means that uptake of the three adult vaccines this fall … is likely to be low,” Hotez said.Here’s what experts are predicting as we look ahead to another respiratory virus season.
Covid-19
Covid-19 cases are getting an end-of-summer bump as people travel and seek indoor refuge from the record-breaking heat. “That tends to allow us to share germs with each other. And that’s certainly happening with Covid. And as I look around, friends and family and colleagues, there’s a lot of disease going on right now,” Creech said.Covid-19 hospitalizations have been on the rise since early July, according to data from the CDC. In the first week of August, more than 10,000 people were hospitalized with Covid-19. That’s a 60% increase over the course of a month, including a 14% bump in the most recent week. Rates are now at levels last seen in April, but this isn’t like the waves of the past.
Wood Mackenzie: the oil industry still isn’t spending enough for supply to meet demand.
WoodMac: investments in new production total $490 billion in 2023.
Despite the prospect of peak demand,Wood Mac analysts are worried about the lack of a spare production capacity cushion.
After years of warnings of failure to invest in enough new exploration, the industry has begun spending more. Yet, it would still be less than is necessary to secure enough supply to respond to demand. That’s the take of Wood Mackenzie analysts, at least, who recently reported that the oil and gas industry is currently in the third year of an upcycle, with this year’s investments in new production at $490 billion. This would be significantly higher than the low reached in 2020, which stood at $370 billion. Even though spending on its own is not enough to secure supply, the Wood Mac analysts noted in an interview for the firm that cost reductions will make up for the difference. They note the rise of U.S. shale and other non-OPEC sources, and forecast non-OPEC producers to maintain a constant market share in the coming years. Indeed, this chimes in with what U.S. oil industry executives reported during the latest financial reporting season. What the said, basically, was that wells were yielding more oil than expected, boosting total production. The reason wells were yielding more: technological improvements. Argus reported earlier this month, citing Pioneer Natural Resources, that well productivity since the start of the year has been trending significantly higher than the average for 2022. At the same time, however,
Bloomberg recently cited research from Enverus suggesting that shale wells were draining faster than previously assumed, with few untapped reservoirs left as the shale patch gets mature.
Besides U.S. oil, there is also Canada, Mexico, Brazil, and smaller producers such as Guyana. These have contributed significantly to global supply, but OPEC remains the biggest fish in the oil pond because of its common supply control policies. What’s more, with the expansion of the BRICS bloc, we get another grouping of some of the largest producers in the world, partly overlapping with OPEC but also including Brazil and Argentina. Groupings aside, global investments in new oil and gas supplied are well and truly on a rise despite the transition push. Goldman Sachs reported last month that there were currently 70 large-scale oil and gas projects under development globally right now. That was up by a substantial 25% from 2020, although 2020 could hardly be seen as a normal year for investment decision-making in any industry except perhaps IT. Per the investment bank, the seven-year-long underinvestment period led to a sharp decline in the resource life of future projects as well as the life of already producing fields. With a rebound in investment, this may yet change. Wood Mac, on the other hand, warns of peak demand and a fundamental change in the oil and gas industry driven by the prospect of that. According to upstream analysts Fraser McKay and Ian Thom, the current cycle will not end with a bust as all previous cycles in the industry did. The reason: the prospect of peak oil demand caused by the transition to non-hydrocarbon energy sources. This prospect, they argued, would keep oil and gas producers on their toes and maintain their financial discipline over the longer term. Still, despite the prospect of peak demand, even
Wood Mac analysts are worried about the lack of a spare production capacity cushion, which could be viewed as a side effect of this newly found discipline with spending and focus on efficiency while adjusting to a world in transition.
“We expect companies to go for margin rather than market share; and upstream supply chain capacity to creep rather than leap, which has been the traditional response in an upcycle,” McKay and Thom said, adding “That restraint could lead to a tighter supply chain than the industry has been used to.” While peak demand for oil is something that a lot of forecasters talk about and even call for openly, for now it remains on the horizon while actual demand for oil breaks record after record. Even the
International Energy Agency, a vocal transition advocate and peak oil demand forecaster said that over the short-term demand is going to grow, hitting a record of over 102 million barrels daily this year.
This makes the global balance between supply and demand perhaps a bit more precarious than the Wood Mac analysis suggests. While it’s true that technological gains have played an important role in keeping production high while reducing costs, U.S. shale drillers have steered clear of their previous setting of “growth at all costs”. Meanwhile, OPEC is keeping a lid on output with the novel option for individual members—Saudi Arabia—to cut additional volumes whenever they decide to, in order to push prices higher. And OPEC, in a sense, grew with the BRICS expansion. The oil and gas industry is spending more on new production despite the transition push. This means expectations are that peak oil demand is a relatively distant prospect. It might even become more distant if the transition begins to show signs of exhaustion amid substantial cost inflation and the risks of raw material shortages. NN: this greenieewinie climate change hysteria will spark off a energy cries. The masses need cars to go to work. they need aircon and heat. They need oil based chemicals. Windmils and solar panels cannot shoulder the load. And the energy crises cannot be avoided. It takes years to bring projects on line. The prayer of the climate change nut cases is energy demand will fall faster then oil production. That is a wet dream it will not happen.
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Prospects of reviving the Iran nuclear deal have swung dramatically, from near certain in March 2022 to almost nil by the end of the year and somewhere in the middle currently. Although prospects of a deal being signed any time soon appear dim, relations between Washington and Tehran have warmed up considerably, with the Biden administration unblocking frozen assets and possibly even allowing Iran’s enrichment of uranium. The U.S. administration might not admit it openly, but it has looked the other way and allowed Iran oil sales to hit record highs–obviously happy to keep the markets flooded in a bid to keep oil prices low. Iranian crude exports exceeded 1.5 mb/d in May, the highest level since 2018 despite the country still being under U.S. sanctions. Israel’s Haaretz newspaper reported that the talks are moving forward more rapidly than expected, with the possibility of a deal being struck in a matter of weeks. Deal terms are likely to include Iran ceasing its 60% and higher uranium enrichment activities in return for permission to export as much as 1M bbl/day of oil.
Iran’s current production is considerably lower than the 2018 peak at 3.7 mb/d. Boosting production from the current level to anywhere close to 6mb/d could, however, take several years at the very least due to years of underinvestment.
US officials acknowledge lighter touch in enforcing sanctions
Iranian oil exports to China reach highest in a decade: Kpler
Bloomberg: While Iran and the US make wary diplomatic overtures, a return to their lapsed nuclear agreement remains a distant prospect. But for world oil markets, a pact is already taking effect. Months of secretive diplomacy between the two nations have yielded progress on prisoner exchanges, the unblocking of frozen assets and possibly even Iran’s enrichment of uranium. They also seem to have produced an informal arrangement on oil flows. US officials privately acknowledge they’ve gradually relaxed some enforcement of sanctions on Iranian oil sales. Tehran has restored production to the highest level since the ban kicked in five years ago and is shipping its most crude to China in a decade. Iranian officials are confident they’ll pump even more soon. The supply flood is helping moderate oil prices, which eased below $85 a barrel in London this week, offering relief to consumers and central banks after years of rampant inflation. Keeping the cost of gasoline — now near $4 a gallon — in check may also aid President Joe Biden’s reelection campaign in 2024.
“It’s the traditional energy diplomacy game: cutting deals to get additional barrels,” said Helima Croft, head of global commodity strategy at RBC Capital Markets LLC in New York. “US and Iranian economic interests are aligned when it comes to more barrels on the market.”
A State Department spokesperson said the US continues to stringently enforce a robust framework of oil and other sanctions against Iran, and noted that export levels fluctuate regularly in response to prices and other factors. Neither country expects to imminently resurrect the 2015 accord — abandoned by former President Donald Trump — that allowed the Islamic Republic to freely sell oil in return for limiting its nuclear program. Yet in recent weeks they’ve reached an understanding on a possible prisoner exchange and the transfer of $6 billion in Iranian oil revenue stuck in South Korea — developments the Biden administration insists aren’t linked. There are even reports that Iran significantly slowed the buildup of near-weapons-grade enriched uranium. The tentative detente is filtering through to the petroleum trade. Washington still won’t tolerate purchases by most of Iran’s pre-sanctions customers such as South Korea, Japan or European countries, but it’s relaxed about expanded sales to China. Shipments to the world’s biggest importer have reached 1.5 million barrels a day, the most in a decade, market intelligence firm Kpler Ltd. estimates. TankerTrackers.com Inc., another consultant, said exports are exceeding 2 million barrels a day. Iran’s production climbed to 3 million barrels a day in July, the highest level since 2018, according to the International Energy Agency in Paris.
“Biden’s willing to look the other way in exchange for Iran capping those uranium stocks,” said Fernando Ferreira, director of geopolitical risk at Washington-based consultants Rapidan Energy Group. Besides, “the White House would be happy to see more barrels in the market to help keep prices in check,” he said.
Tehran expects to boost output to 3.4 million barrels in coming weeks, Oil Minister Javad Owji recently told the Iranian parliament’s energy committee, according to the state-run Shana news agency. That may increase to 3.6 million barrels by year’s end, according to people with direct knowledge of the matter. If the country achieves that target — just a few hundred thousand barrels shy of pre-sanctions capacity of 3.8 million barrels — there won’t be much more oil to flow even if a formal agreement with the US is finalized. “They’re getting close to pre-Trump levels; there’s a question of how much more can they do,” Croft said. “The question is: At what point does ‘de minimis sanctions enforcement’ really mean ‘de facto lifting of sanctions?’” Rebounding sales are one of the most tangible signs yet that Iran — reeling financially from years of isolation — is reasserting itself on the global stage after starting to repair ties with regional rivals and foster relations with Asia’s leading power. The supply surge comes at a fragile moment for global oil markets, with Chinese economic growth and fuel demand faltering, and undermines efforts by Iran’s counterparts in the OPEC+ coalition to shore up prices. Saudi Arabia, leader of the Organization of Petroleum Exporting Countries, deepened oil output cutbacks over the summer by a hefty 1 million barrels a day. Yet Brent futures have retreated 5% since hitting a six-month high in early August. For the Saudis, Iran’s comeback is “not a big problem at the moment but has the potential to become one,” said Christof Ruehl, senior analyst at Columbia University’s Center on Global Energy Policy. Whether the Islamic Republic can sustain, or even increase, exports will depend initially on how much more oil it can pull from storage. The country has drawn down a combined 16 million barrels held onshore and aboard tankers this month, leaving it with another 80 million, according to Kpler. But with most potential buyers still off-limits, Iran ultimately will rely on appetite from China. Beijing has been scooping up Iranian barrels to fill its strategic reserves, encouraged by the hefty discounts Tehran is offering to compete against Russian supplies spurned by Europe. Iran’s two main grades currently trade at discounts to Brent of more than $10 a barrel, traders say. But Chinese consumption is under pressure as the country contends with crises ranging from youth unemployment to turmoil in its property and shadow banking sectors. A top oil executive suggests the nation’s fuel use may have maxed out for the year. “The amount of stockpiling China has been doing is going to tail off at some point,” said Ed Morse, head of commodities research at Citigroup Inc. “Demand growth out of China is close to being finished.” Finally, there remain logistical obstacles. Restrictions on accessing the international banking system make it difficult for Iran to get paid, and without foreign investment it will struggle to boost production capacity. Also, Tehran, frozen out of international shipping and insurance, needs to secure enough tankers from the “dark fleet” to haul its cargoes. The vessels — often aging and uninsured carriers that deactivate transponders to avoid detection — also are essential for Russia, which has been shut out of conventional shipping following its invasion of Ukraine. “Will there be enough tankers to move both?” Rapidan’s Ferreira said. NN: NO! They are at maxium capacity and shrinking. STORAGE IS SUBSIDIZING exports NOT meaningful production increases.
United States Federal Reserve Bank of Cleveland President Loretta Mester stated on Friday that the main debate at the central bank at the moment is whether its restrictive policy is restrictive enough to get inflation to its target of 2%. Speaking to CNBC during the Jackson Hole Economic Symposium, Mester noted that the Fed’s forecast published in June does not predict cutting rates in 2024, underscoring that more evidence is needed to show that inflation is “cooling.” Still, she also voiced her belief that the economy is “getting close to where we need to be with rates.” Mester projected that it is “very likely below-trend growth” will be “needed to lower inflation.” She also reiterated Chair Jerome Powel’s stance on monetary policy, saying the Fed does not want to “over-tighten” the rates.
Harker: Fed to hold rates until year-end
Federal Reserve Bank of Philadelphia President Patrick Harker stated on Friday that the Fed is “clearly going to hold [rates at current levels] through the end of the year.” During an interview with Yahoo Finance on the sidelines of the Jackson Hole symposium, the banker said that rate cuts will only be considered next year, with rate hikes dependent on inflation. Finally, Harker reiterated that the Fed must maintain its tightening stance and must keep up the pressure. It will take some time to reach the inflation target.
Oil prices jumped more than 1% on Friday after the latest report on US oil inventories, which showed they dropped by 6.1 million barrels in the week ending August 18. Crude output is also jeopardized by voluntary cuts by some OPEC member states. Additionally, markets are awaiting Federal Reserve Chair Jerome Powell’s remarks on further interest rate hikes later in the day. West Texas Intermediate (WTI) for October contracts increased by 1.37% to sell at $80.12 per barrel at 6:06 am ET, while Brent for the same month’s settlements gained 1.39%, going for $84.51 a barrel a minute later. A strong dollar makes oil more expensive for holders of other currencies, denting demand.
Meanwhile, inventory draws have recently come through in convincing fashion, Morgan Stanley analysts wrote in a note.
The bank expects Brent crude prices to be well supported around $80 per barrel, with crude likely to remain in a deficit over the rest of this year before returning to a small surplus in early 2024. However, the likelihood of crude deficits is no foregone conclusion, said John Evans of oil broker PVM. Talks between Turkey and Iraq’s semi-autonomous Kurdistan regional government on northern Iraqi crude oil exports are set to continue after officials failed to reach agreement this week on a resumption of exports. Turkey stopped Iraqi oil flows via Ceyhan port on March 25 after losing a long-standing arbitration case brought by Iraq. Iran’s oil minister, meanwhile, has been quoted by state media as saying he expects the country’s crude oil output to hit 3.4 million barrels per day (bpd) by the end of September, even though U.S. sanctions remain in place. Elsewhere, U.S. officials are drafting a proposal that would ease sanctions on Venezuela’s oil sector, paving the way for more companies and countries to import its crude oil. Norway’s Equinor on Friday said it started production at its extended Statfjord Ost field six months ahead of schedule. “The support to oil prices from previous production cuts has ebbed,” Haitong Futures analysts said. Several analysts expect Saudi Arabia to extend its voluntary oil production cut of 1 million bpd for a third consecutive month into October.