Very Minor Attack. The Energy Report 06/18/19

President Donald Trump is trying to downplay the alleged Iranian attacks on 2 oil tankers as “very minor” in an interview with “Time”. This proclamation sent oil lower, even as Acting Secretary of Defense Patrick Shanahan announced he had authorized approximately 1,000 additional troops for “defensive purposes” in the Persian Gulf region. Shanahan said in a statement that “The recent Iranian attacks validate the reliable, credible intelligence we have received on hostile behavior by Iranian forces and their proxy groups that threaten United States personnel and interests across the region.” This comes as the U.S. releases photos, videos and tanker timelines to show the evidence why they believe that Iran is behind these ”very minor” attacks. This is reducing the geo-political risk in a market that has already been wobbly as funds have been driving prices lower on weakening global oil demand concerns.

Even ECB President Mario Draghi this morning failed to give oil a bid, even as he promised a new round of stimulus. He said, “In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required.” He warned that the ECB sees  “lingering softness” in the short-term, in particular due to geopolitical factors and trade conflicts, which have slowed exports and the manufacturing sector. Yet can oil fall too far with the U.S. Fed ready to tell us how dovish that they are? Tomorrow’s Fed announcement after a two-day meeting may set the stage for oil for the rest of the month. If they come off very dovish than oil should rally hard. Yet the mood on Oil this last week seems to be more convinced that global economic weakness will overshadow central bank action. That is not true but if the commodity funds still believe that, they may be able to give us another leg down.

Oil also saw weakness from Private Cushing Oklahoma intelligence services that are now predicting yet another increase in crude supply. That is making buyers of oil wary because they fear yet another counter-seasonal Crude oil build. The Energy Information Administration has added over 28 million barrels of phantom barrels of oil in the last 5 weeks, so oil bulls are rightly concerned about another big increase. Of course, without an adjustment and even with the increase in Cushing Oklahoma, supply should fall. Demand for distillate should rise big again as many farmers have been working overtime in the fields. Gasoline demand should also rise as consumers got a big price break at the pump. Talk about stimulus. That should give retail sales a big boost as well.

This comes as the Wall Street Journal reports that Saudi Arabia is ready to extend cuts. The WSJ reports “Saudi Arabia is cutting its oil output and is asking other producers for restraint in production, according to officials in the group, as signs of slowing global demand for crude outweigh threats of war and worries about supply disruptions in the Middle East. The oil group’s de facto leader has already deepened its own output cuts this month, according to OPEC officials. The kingdom is preparing to amass support for a continuation of OPEC’s official reduction target of a 1.2 million barrels a day in the second half of the year ahead of an upcoming meeting of for the Organization of the Petroleum Exporting Countries and its Russia-led allies. The Saudis will also press countries that aren’t complying with the current agreement to cut their production to agreed levels, said a Saudi oil adviser. When OPEC and its allies met in December, the coalition agreed to curb output by 1.2 million barrels a day. Oil prices surged following implementation of the agreement and posted their best first-quarter performance in decades.”

Natural Gas is seeing more pressure as warmer summer forecasts are being pushed further back. Power generation is coming in well below earlier expectations. If we don’t get summer, look for a bloodbath.
Thanks,
Phil Flynn

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