Oil is pulling back as a warning from the Organization for Economic Co-operation and Development (OECD) global governments had better cut spending and raise taxes to regain what they call “Fiscal Firepower” to fight the next economic shock. The think thank says that while global governments may have turned the corner on inflation, they have deleted their ability to respond forcefully to the next inevitable economic shock.

That shock may come in the form of an oil price shock as OPEC throws cold over “peak oil demand” predictions by saying they expect that global oil demand will continue to increase between now and 2050 by almost 18% to hit 120.1 million barrels a day by 2050. My concern is that predictions of peak oil demand are leading to a massive underinvestment in fossil fuels that leaves us vulnerable to major price moves.

This comes as Amena Bakr says that Swiss UBS is reporting, “Oil supply growth from OPEC+ and non-OPEC+ has been modest since December, keeping the oil market in deficit. With inventories set to keep falling, UBS expects to see Brent crude move back above $80.00.

US oil inventories continue to fall at a dramatic pace as evidenced by the Hurricane Francine impacted weekly report. The API reported that US crude oil inventories fell by 4.339 million barrels last week. We also saw another 260,000-barrel drop in the Cushing, Oklahoma delivery point. Concerns that Cushing is near the lower operating margin should be supportive to crude oil. It seems the market believes it is not an issue as they hope that coming refinery maintenance will keep us above empty.

The API also reported a much larger than expected drop of 3.438 million barrels in gasoline supply and a 1.115-million-barrel drop in distillate supply. The drop in distillate inventories is smaller than the drop in gasoline yet seems to have put a little bit of a bid under the diesel crack spread.

Seasonally you would think we would bottom here as we get closer to winter and global inventories are still below average in the diesel category. That is even though we’ve seen weakness in manufacturing around the globe which has been a downward pressure point for diesel. At the same time US oil supply is already tight and looks to get tighter when winter approaches.

The EIA Also pointing out that the US is fulfilling its potential destiny by becoming refiner to the world. The EIA reported that the United States is the world’s largest exporter of motor gasoline (finished gasoline plus gasoline blending components), supplying over 16% of total global exports. U.S. motor gasoline exports in 2023 averaged 900,000 barrels per day (b/d), equivalent to about 10% of domestic consumption and enough to fill up the tanks of over 1.5 million SUVs per day, assuming an average tank size of 24 gallons. Other large gasoline exporters, including Singapore and the Netherlands, have never exceeded 700,000 b/d in gasoline exports. China and India have both added significant refining capacity since 2010 and have also increased gasoline exports. The United States was a net importer of motor gasoline for over a half century from 1961 to 2015. However, that trend changed during the past decade.

Tropical Storm Helene is impacting some Gulf of Mexico (GOM) oil and gas production but based on the track from the Fox Weather ap it will have less of an impact than we just had from Hurricane Francine. The Bureau of Safety and Environmental Enforcement says that 16.21% of Gulf oil production is shut in and 11.2% of GOM natural gas production.

Geopolitical risk factors foil oil do not seem to be a factor for oil, until it is. Reuters reported that Iran has been facilitating secret negotiations between Russia and Yemen’s Houthi rebels, aiming to transfer advanced anti-ship missiles to the group, according to three Western and regional sources. The Wall Street Journal reported that Israel said it intercepted the first missile Hezbollah had ever fired at the commercial capital of Tel Aviv, with the militant group saying it was targeting the command headquarters of Israel’s Mossad spy agency.

Alerts sent residents scrambling into shelters as the missile approached. Israel’s military said air defenses intercepted the missile, which came as the fighting between the parties continued to escalate. Hezbollah’s attempted strike on Tel Aviv early Wednesday came after days of Israeli strikes in Lebanon, which Israel says targeted Hezbollah. Those attacks killed and injured hundreds of Lebanese and displaced tens of thousands, according to Lebanese officials.

Hezbollah said that Mossad, the target of the missile, is responsible for the assassination of several of its leaders, as well as pager attacks on its members. The Israeli military said Wednesday morning that it struck the launcher, located in Lebanon’s south, that was used to fire toward Tel Aviv. Hours later, Israel’s military said it was conducting extensive strikes in the south and the Bekaa Valley. With all this drama there’s a suggestion that the market believes that this conflict will not impact supplies in a dramatic way. That optimism though might not match up with reality especially if this war continues to escalate.

Natural gas pulled back after it appeared that Tropical Storm may have more impact on demand with power outages and such.

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