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Hedgers Give Thanks. The Energy Report 11/22/17

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Business and users of oil that did not buy into the lower for longer talk are giving thanks this Thanksgiving for having hedged their oil, gasoline and diesel purchases. Suddenly, the oil glut that many had predicted would last forever has suddenly turned into a very tight market. Oil futures are in contango for the first time since 2014 as refiners bid up the front months of oil to try to secure supply to meet surging global oil demand. In the U.S. there is already talk of diesel shortages driving up spot prices in some areas. U.S. oil production is still below expectations and shale firms are signaling they are not in a hurry to aggressively raise production until they are sure they can do it profitably. This comes ahead of a OPEC meeting where they are wildly expected to extend production cuts and with increasing geopolitical drama in Venezuela and Saudi Arabia.

Oil supplies are getting tighter. The American Petroleum Institute reported a massive 6.35 million barrels drop in crude oil supply as well as a 1.796 million barrel drop in the Cushing Oklahoma delivery point. That was coupled with a big 1.673 million barrels drop in the undersupplied distillate market signaling to crude that refiners will have no choice but to run full tilt for the foreseeable future. This drove the crude market into contango as traders start to fret about diesel shortages this winter.

Bloomberg News reported that a “diesel shortage in West Texas and New Mexico has sparked demand for truckers to long-haul supplies from Oklahoma, Mansfield says in an emailed notice. They say, “Supply concerns” emerged in Texas markets: Odessa, El Paso, Abilene, Amarillo, Lubbock as well as Albuquerque, N.M.. The tightness attributed to refinery turnaround delays from Hurricane Harvey, Explorer Pipeline shutdown and repairs earlier this month, record-high weekly diesel exports. They say mixed with limited supplies, exports have risen significantly out of Texas, causing demand to outstrip supply in the region. Mansfield says, “Prices will likely reflect the limited supply situation in the coming days”. There are record diesel exports because supplies are tight around the globe. Diesel producers got hit not only with weather and refining issues, but their biggest problem was the underestimation of demand.

The doom and gloom on weak demand earlier in the year has proven to have no basis. Markets reacted to underestimation of demand and overestimation in U.S. and global oil production forcing producers and some buyers into a false sense of everlasting bearishness.

The bears also misjudged OPEC and Non-OPEC’s resolve to reduce the overhang and many predicted that their historic deal would fall apart. They said that even if they did comply, oil from Libya and Nigeria and shale would overcome the market place. Instead we have seen just the opposite. Libyan oil production and Nigerian production has not been stable. In Iran they are struggling to export huge numbers even as sanctions were lifted and Venezuelan oil production is in a tailspin.

But that is the least of the drama in the collapsing socialist state. The Wall Street Journal reports that ”Venezuela’s intelligence agency arrested six top executives at the U.S. subsidiary of state-oil company Petróleos de Venezuela SA, as part of what authorities are calling an anticorruption crusade.”

Attorney General Tarek Saab said “the acting president and five board members of the subsidiary, Houston-based Citgo Petroleum Corp, tried to defraud the nation through a planned $4 billion financing deal with three little-known foreign investment funds.”  Are they taking a page out of Saudi Arabia’s corruption crackdown playbook or is this just an act of desperation by Venezuelan President Maduro?

In Saudi Arabia this weekend they claim a ballistic missile was fired again. Al Jazeera reports that the U.S. State Department has cautioned its citizens “to carefully consider” travelling to Saudi Arabia, citing persisting “terrorist” threats and a spillover of violence from Yemen across the border. The travel warning, issued on Tuesday, warned of the threat of ballistic missiles fired by rebel groups from Yemen into the kingdom.  This as the corruption crackdown in the Kingdom continues with no reports of Royal family members cutting deals to gain their freedom.

I give thanks to almighty God this thanksgiving that we live in the greatest country in the world and for the many blessing he has given this country. I also give thanks to the brave men and women in our military that keep us safe and protects our freedom and liberty. I pray for their safety and I wish everyone a happy Thanksgiving.
Phil Flynn
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About the author

Mr. Flynn is one of the world's leading energy market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.

Phil Flynn's accurate and timely forecasts have come to be in great demand by industry and media worldwide. His impressive career goes back almost three decades, gaining attention with his market calls as writer of “The Energy Report”.

He is a daily contributor to Fox Business Network where he provides daily market updates and analysis. Phil’s daily commentary is also featured in Futures Magazine, International Business Times, Inside Futures, 312 Energy, Enercast, among many others.

Phil is a lifelong resident of Illinois. He attended Daley College in Chicago before beginning his career on the trading floor of the Chicago Mercantile Exchange which eventually led him and his team to The PRICE Futures Group.

Media highlights include: The President of the United States, Bloomberg, ABC, CBS, NBC´s "Today Show" and "Nightly News with Tom Brokaw", CNBC, CNN/CNNfn, FOX´s "O´Reilly Factor", PBS´s "The Newshour with Jim Lehrer" and "Nightly Business Report", MSNBC´s "The News with Brian Williams", The Wall Street Journal, Business Week, Investor´s Business Daily, The New York Times, The Los Angeles Times, Chicago Tribune, Associated Press, The Toronto Globe & Mail, Houston Chronicle, Futures Magazine, Inside Futures, and National Public Radio.

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