Fears of New Supply Weighing On Crude Prices

The Energy Report

The Energy Report

 

The Phil Flynn Energy Report 

Backlash

 

Crude oil prices are preparing for a backlash in the aftermath of the killing of Iranian General Qasem Soleimani. Reuters reports that Saudi Arabia's Energy Minister said the kingdom had taken all precautions to ensure the safety of oil facilities after recent strikes in Iraq. Yet the real backlash may indeed be against the Iranian regime that may be shooting at their own people once again after lying about shooting down the Ukraine International Airlines passenger flight PS752.

Chants of “death to liars” and chants that “the US is not our enemy” rang through the crowds in Iran. Iranians showed anger and grief after Iran showed little respect for the victims of  their mistake. The Iranian economy is in a shambles and the Iranian elite are the only ones that are prospering leading to a real sense of desperation. President Trump tweeted, “to the leaders of Iran - DO NOT KILL YOUR PROTESTERS. Thousands have already been killed or imprisoned by you, and the world is watching. More importantly, the USA is watching. Turn your internet back on and let reporters roam free! Stop the killing of your great Iranian people!” Yet Iran did not seem to get the message.

 

The AP reports that, “Iranian security forces fired both live ammunition and tear gas to disperse demonstrators protesting against the Islamic Republic’s initial denial that it shot down a Ukrainian jetliner, online videos purported to show on Monday. Videos sent to the New York-based Center for Human Rights in Iran and later verified by The Associated Press show a crowd of demonstrators near Azadi, or Freedom, Square fleeing as a tear gas canister landed among them. People coughed and sputtered while trying to escape the fumes, with one woman calling out in Farsi: “They fired tear gas at people! Azadi Square. Death to the dictator!” 

 

The AP continues that, “another video shows a woman being carried away in the aftermath as a blood trail can be seen on the ground. Those around her cry out that she has been shot by live ammunition in the leg. “Oh my God, she’s bleeding, nonstop!” one person shouts. Another shouts: “Bandage it!” Photos and video after the incident show pools of blood on the sidewalk.

 

The AP continues that Tehran’s police chief, Gen. Hossein Rahimi, later denied his officers opened fire through the semi-official Fars news agency said police, “shot tear gas in some areas.” “Police treated people who had gathered with patience and tolerance,” Iranian media quoted Rahimi as saying. “Police did not shoot in the gatherings since broad-mindedness and restraint has been the agenda of the police forces of the capital.” The regime that lied is facing widespread street protests after the government finally admitted that it accidentally shot down Ukraine International Airlines flight PS752.

 

While some shale producers may have been able to hedge the recent pop in oil prices, the U.S. rig count continues to fall. Market Watch reported that Baker Hughes on Friday reported that the number of active U.S. rigs drilling for oil fell by 11 to 659 this week. That followed declines for oil rigs in each of the past two weeks. The total active U.S. rig count, meanwhile, was down 15 from last week at 781, according to Baker Hughes.

 

Bloomberg says that fears of new supply are also weighing on crude. Bloomberg says that, “The U.S. reported record weekly net oil exports earlier this month. Meanwhile, Brazil and Guyana are set to add more than 400,000 barrels of combined daily supplies to the market this year, a volume that would offset most of the auxiliary cuts agreed to by OPEC and its allies in late 2019.

 

Still, oil seems to be holding key support. U.S.-China trade progress, as well as ongoing OPEC plus cuts, should keep oil in an upward trend. Yet Reuters is reporting that, "China’s natural gas demand in 2020 is expected to grow at its slowest pace in four years due to a faltering economy, according to a think-tank at the country’s largest energy producer, China National Petroleum Corp. Slower demand growth in China would drag down global LNG markets already grappling with oversupply and low spot prices. In its annual outlook report released on Monday, the think tank forecast natural gas consumption to rise 8.6% this year to 330 billion cubic meters. That would mark the slowest demand growth since 2016. CNPC expects 2019 gas consumption up 9.6% year-on-year at 304 bcm.

 

The Fox Business Network reports that, "Drivers are seeing higher prices at the pump to start the new year, but this could be it for a while. The average U.S. price of regular-grade gasoline has jumped 4 cents per gallon to $2.64 over the past three weeks, according to the Lundberg Survey. Industry analyst Trilby Lundberg said Sunday that gas prices are unlikely to continue to increase because crude oil costs have dropped. The price at the pump is 33 cents higher than it was a year ago.

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About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor.