Energy Report: Risks Are Evolving

Oil and products are off this morning in a general risk-off situation that has impacted almost all major commodities markets. Strength in the dollar and concerns about a weak stock market have traders giving into demand concerns. Yet on the other side, supply for oil and products will tighten despite progress made in bringing production of oil and gas back in the Gulf of Mexico. The BSEE reported Friday that 23.19% of oil production was offline in the Gulf of Mexico as well as 34.33% of natural gas production. The BSEE did not report over the weekend probably because they needed a much-deserved weekend off. Rising concerns about the Chinese economy and the potential for contagion are making traders nervous. The failure of Evergrande, China’s second-biggest property company, has people comparing the failure to Lehman Brothers and another financial crisis that could negatively impact gasoline demand.

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Yet while things look weak, it does look like a typical Monday selloff and if the pattern goes with the odds, it should turn around on Tuesday. The market will get a reality check when it gets its first glimpse of oil Inventories after the American Petroleum Institute releases its data that should show a 4.7 million barrel draw in crude oil supply, a 5.0 million barrel draw in gasoline supply, a 4.0 million barrel draw in distillate and a 3.0 drop in refinery runs.

The risks of natural gas shortages are raising and they are big risks as far as keeping people warm and fed. ISIS reported that the U.S. trade group Industrial Energy Consumers of America (IECA), which represents industrial companies, urged the U.S. Department of Energy (DOE) on Friday to restrict or limit LNG exports on concerns of rising gas prices. IECA’s letter called on U.S. Energy Secretary Jennifer Granholm to require U.S. LNG producers to reduce exports to prevent price spikes this winter. The industrial organization also requested that the DOE place a hold on all pending export authorizations for new LNG export plants in the lower 48 states of the U.S..

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