Imagine if you will, a trading range, not so much based on fundamentals but your mind and imagination. A market twisted between expectations of demand that may fall in the future versus the tight supplies that could be right around the corner. A market that seems immune to geopolitical risks but continues to drive prices to a point that could discourage production that will be needed in the future. This warped feeling could keep you caught in a range that goes on forever. Welcome, to the OPEC zone.Despite expectations of the OPEC plus deal falling apart, the reality is that OPEC did set the stage for a tightening market in the future. Yet as we’ve seen from previous OPEC meetings, the market is skeptical and they’re skeptical for good reason. The main problem is that they do not believe that the OPEC cheaters will as promised, reign in their overproduction.S&P Global wrote that, “Under the plan, the gradual rollback of some 2.2 million b/d of voluntary curbs that had been set to begin in January will now be implemented from April, the OPEC secretariat said in a statement. “This monthly increase can be paused or reversed subject to market conditions,” the statement said.Even the UAE, which has been among the most vocal within the group calling for more production and earlier secured a 300,000 b/d hike to its quota that was also to begin in January, agreed to delay phasing in that increase until the second quarter. The group has struggled to influence prices, with output rising from the US, Brazil, Guyana, and other rival producers, while many analysts have revised down their demand growth forecasts according to S&P Global. Yet are demand expectations being put down too much?We just got new data from India that shows that their demand is on track to break records. India’s oil demand rose by 9.3% y/y to 20.428million metric tons in November.And because of the complacency in the oil price, the expectation that US production will continue to rise is most likely incorrect.It was reported that oil super major Chevron is going cut capital spending for the first time since the pandemic. Chevron is tightening its belt which usually is a sign that we are getting close to a major bottom. Every time we start to see these oil companies start to cut cap ex, it’s normally the time the prices start to go back up. This is especially true because we’re cutting CapEx at a time where oil inventories are below average in every major category not only here but around the world. This week the EIA reported that U.S. commercial crude oil inventories decreased by 5.1 million barrels from the previous week. At 423.4 million barrels, U.S. crude oil inventories are about 5% below the five-year average for this time of year. Total motor gasoline inventories increased by 2.4 million barrels from last week and are about 4% below the five-year average for this time of year.Distillate fuel inventories increased by 3.4 million barrels last week and are about 5% below the five-year average for this time of year. So as you can see it’s not like we’re being overwhelmed with supplies.China oil demand of course has been the thing that seems to have subdued prices more than anything else. Reuters reported that, “China’s crude oil imports are on track to peak as soon as next year as transport fuel demand begins to decline for the world’s top crude buyer, ending the country’s decades-long run as the dominant driver of expanding oil consumption. The speed of its transition to electric mobility has stunned oil producers and investors. No single market is positioned to replace Chinese demand, which has made up 41% of annual global oil consumption growth averaging 1.1 million barrels per day (bpd) over the past three decades, according to the Statistical Review of World Energy. Every time you hear a prediction of peak demand in China or anywhere else, it’s time to view that with skepticism.The big talk about the electric push in China is being more than made-up by the demand growth in India and to believe that China’s demand for oil has peaked because of electric cars, doesn’t face the reality of the entire country. Even though they are having a lot more electric, the internal combustion engine is still a big part of the Chinese demand cycle and the growth potential for China cars still is incredible.Whether we get the Keystone Pipeline back in operation or not there is still a lot of talk that Canadian companies are looking very seriously at taking advantage of the Trump administrations approved regulatory environment to expand the production of pipelines. In the United States there is going to be a strong demand for heavy crude here in the US from Canada. The sooner we can move that through to the sooner we can move that crude to our US refiners to better.The natural gas inventories had a bit of a bearish twinge to it even with the extreme cold temperatures that we’ve seen in many parts of the country. The Energy Information Administration (EIA) reported that Working gas in storage was 3,937 Bcf as of Friday, November 29, 2024, according to EIA estimates. This represents a net decrease of 30 Bcf from the previous week. Stocks were 185 Bcf higher than last year at this time and 284 Bcf above the five-year average of 3,653 Bcf. At 3,937 Bcf, total working gas is above the five-year historical range.In Europe we know they could be heading towards an energy crisis with temperatures well below normal. Yet John Kemp at John Kemp Energy points out that Northern China has experienced an exceptionally mild start to the winter which has helped suppress gas consumption and prevented a bidding war with LNG buyers in Europe. Temperatures at Beijing have been above the long-term seasonal average on 38 of last 60 days. Beijing’s cumulative heating demand so far this winter has been the lowest since at least 2010.More By This Author:All Aboard The Trump Train – Manic Metals Report The Energy Report: Peace DividendGold Quest – Manic Metals Report
