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111 Billion Reasons. The Energy Report 11/18/19

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I guess $111 billion dollars in profit is not what it used to be. The Saudi Aramco valuation looks as if it is going to come in short of the two trillion-dollar valuation that Saudi Crown Prince Mohammad Bin Salman Al Saud, or MBS for short,  had hoped for. Not even his talents in the power of persuasion against his own people it seems were able to sway foreign investors that were a bit leary of those lusty expectations. Despite being the most profitable company in the world, it seems that the negatives being associated with a company that is still 98% owned by the Saudi government gave some pause. It may be that the yield on the dividends is still going to come in lower that some of the other big oil major’s but also the fact that the Saudi government has some significant baggies. Not only do some major investors have some concerns about being in business with a government that allegedly murdered Saudi journalist Jamal Ahmad Khashoggi, but also a company that may be opening itself up to lawsuits regarding climate change. There is also concerns that the Saudi’s are selling because they see the writing on the wall when it comes to the peak global oil demand. The reality is that Saudi Arabia’s Crown prince is to blame for the missed valuation.

In the meantime oil prices had a great end to the week as the market seemed to believe that not only was the U.S. and China close to securing a phase one trade deal but also the possibility that the democrats were getting close to voting on the USMCA trade deal with Mexico and Canada. House Speaker Pelosi seems to be suggesting that the democrats would be wise to get this done as opposed to hanging their hat on an impeachment trial that shows the democrats care more about getting Trump than they care about the American people.

This comes as the U.S. oil rig count continues to plummet. Market Watch reported that Baker Hughes BKR, +3.65% on Friday reported that the number of active U.S. rigs drilling for oil fell by 10 to 674 this week. That followed declines in each of the last three weeks. The total active U.S. rig count meanwhile, also fell by 11 to 806. The rig count has dropped by -214 (-24%) since this time last year. The drop in the rig count is making the EIA projection on U.S. oil production a tough one to beat. U.S. production of oil should start to stagnate.

Oil demand on the other hand is better than the naysayers have been telling you. The IEA reported that global oil demand in the third quarter of 2019 grew by 1.1 million barrels a day, more than double the 435,000 barrels a day in the previous quarter, according to the latest report from the International Energy Agency (IEA). China was the largest contributor, with demand increasing by 640,000 barrels a day year-on-year, report projected a year-on-year acceleration in global growth of 1.9 million barrels per day for the final quarter of 2019.

I am hearing from happy hedgers and yes you still should get hedged. Global supply is tight when based on forward product demand cover and new IMO rules still give us significant upside price risks.

Natural gas is looking past a warm up to a very cold December. But the big picture is the U.S. is looking to the future as Freedom Gas is going to be unleashed on the world! The Huston Chronicle reports that Federal regulators appear poised to make permit decisions on the applications submitted by four liquefied natural gas export terminals in Texas. After more than three years of review, commissioners with the Federal Energy Regulatory Commission have placed permit decisions for the four projects on the agenda for the agency’s Thursday morning meeting. Three of the proposed projects are to build new LNG export terminals at the Port of Brownsville in the Rio Grande Valley while the fourth is for an expansion of Corpus Christi LNG, a South Texas export terminal owned by Houston liquefied natural gas company Cheniere Energy.
Phil Flynn

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In case you missed it! Phil’s guest appearance on the McKeany-Flavell Hot Commodity Podcast last Friday, September 20th talking about current energy market dynamics. LISTEN HERE!

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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.

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