Photo by Zbynek Burival on Unsplash

Oil showed its first sign of technical weakness in weeks closing below the short-term trend line in hopes that Russia will ease up on part of its diesel export ban and the US dollar that hit the highest level since March despite the hyperbole of a potential government shutdown.  

The diesel crack spread began to crack after it was reported that Russia made some changes to its fuel export ban including lifting restrictions on fuel used as bunker fuels for some vessels and on diesel with high sulfur content, which some countries have tried to ban. Bloomberg reported that Russia’s diesel exports dropped by almost 30% before the export ban and the hope is that this little sign of retreat might open the door to a little more Russian diesel sneaking out. Maybe some that is not quite bunker grade.

Even concern that Moodys might lower the US credit rating if the government shutdown was not enough to slow the ascent on the greenback that is rising on the possibility that the Fed will have to raise rates as the only ammunition, they must try to stop rising energy prices.

China’s Golden Week which starts Sunday can be the best of times and the worst of times for oil. Demand is rising but factory demand is slowing. Regardless of what you hear about the Chinese economy, their oil demand and their refinery runs are still near record highs. 

The gasoline crack has also broken hard and that should signal some relief at the gas pump. Yet with supply still below average and with a global crude market that is being undersupplied by a couple of million barrels a day, do not look for a major pump price break. 

The global undersupply of oil should show up again in this week’s inventory data. Crude supply should fall by maybe as much as 4 million barrels and we should see another significant supply decline at the Cushing, Oklahoma delivery point where supplies are at the lowest level since July of 2022. This comes as the DOE reported that crude inventories rose by 300,000 barrels in the SPR to 351.5mb last week.

Still, technically the market is looking heavy, and we need to close back above 9000. Regardless of the technical battles, we are facing shoulder season. The long-term fundamentals are still bullish. Use weakness to establish hedges going into winter. 

Also, do not look for the world to reach its fanciful carbon targets. Javier Blas of Bloomberg pointed out that the International Energy Agency shows that oil demand needs to plunge from 100 million barrels a day (m b/d ) to 77million m b/d by 2030 and 24m b/d by 2050 (in 2021, it said 72m b/d by 2030). Blass says, “The 2030 target is unreachable. Pure and simple. And I think everyone knows it, including nearly everyone in the IEA. Not even at the height of the COVID-19 pandemic, with billions at home under lockdown and global GDP in free fall, did oil demand drop as much.” Blass asks, “And we know what the IEA really thinks about 2030, because they published this year their forecast of the most likely oil demand path to 2028, showing consumption rising to >105m b/d. So please, what’s the point of its net-zero model if their best knowledge says it won’t happen?

The IEA, as I have written before, has lost its credibility as an agency that was originally designed to ensure energy security for global oil-consuming nations. Now they have become just a mouthpiece for the global green energy agenda that puts energy aspirations ahead of science and reality. While everyone blames OPEC for the rise in oil prices, I also blame the IEA which has provided misinformation to push their green energy agenda with little regard for reality. Their recent predictions of peak oil demand show that they have not learned their lesson.

Natural gas is trying to consolidate and bottom. Dan Molinski at the Wall Street Journal wrote that natural gas prices saw very little movement today and ended the session almost exactly where they began, up 0.08% at $2.639/mmBtu. The market found price support in recent months from a very hot summer in Texas that boosted gas-fired electricity generation to cool homes and businesses. But the fall season has started to bring cooler temperatures to the Lone Star state and other parts of the Southern Plains, and that’s making investors reluctant to buy the commodity. Traders say consistently high rates of natural gas production as offshore facilities continue to avoid hurricane-related disruptions are also preventing potential upside for the market.

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