The Energy Report: Recession Rut
Phil Flynn | Sep 19, 2022 09:55AM ET
The oil market is in a rut as the recession fears seemed to overshadow what normally would be very bullish fundamentals. This slew of central bank decisions around the globe and by the Federal Reserve and holiday trading in Japan in Asia, is allowing the market to ignore the potential for energy shortages this winter.
For example, reports that China is reopening Chengdu in China should have given oil a bounce. Or, the fact that OPEC continues to miss production targets should have given oil a bounce. Reuters reports that, “OPEC+ fell short of its oil production target by 3.583 million barrels per day (bpd) in August, an internal document showed, having missed target by 2.892 million bpd in July." Yet ,a report from Jodi showed that global oil demand fell counter-seasonally in July by approximately 1.1 million barrels per day (mb/d), led by declines in OECD Europe, India, China, Saudi Arabia and Indonesia, is feeding into recession fears.
The market is also going to have to deal with the end of the Strategic Petroleum Reserve releases from the Biden administration even though there are growing calls from Democrats to continue to release oil from the reserve. It seems to be almost hypocritical when we consider the fact that it was the Democrats that blocked the Trump administration from filling the reserve when the price of oil was in the $30 region.
Yet, with a lighter volume than normal, it appears that the market’s path of least resistance at this point is lower. These short-term demand concerns are going to face the reality that inventories are still too tight going into winter. They’re also going to have to face the reality that the situation between Russia and Ukraine is still putting supplies of energy to Europe at risk.
Natural gas prices are getting hit hard as well as tropical storm Fiona is going to miss the Gulf of Mexico. In addition, the fact that we’re concerned about a slowdown in demand and a moderating of hot temperatures is putting downward pressure on prices.
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