Phenomenal Friday!

The Best OPEC Compliance EVER! Phenomenal! Tax Cuts! Phenomenal! It is a phenomenal Friday! Not only is OPEC compliance to production cuts the best-ever per a report by the International Energy Agency (IEA) President Donald Trump is promising a phenomenal tax cut plan that drove US stocks to records and increased already increasing demand expectations for oil. We are setting the stage for some phenomenal moves on oil in a new era of phenomenality.

Let’s talk about the phenomenal IEA report. Oil prices jumped as OPEC is earning credibility by adhering to its production cuts. The IEA as reported by Reuters said that global oil supplies fell by around 1.5 million barrels per day last month, including by 1 million bpd for OPEC, leading to record initial compliance of 90 percent with a six-month output-cut deal reached in December by big producers to boost prices. What makes this phenomenal is that except for your humble energy report writer there was no one that predicted this level of compliance. Ok maybe its seems a bit egotistical of me to point that out but President Trump did not rise to the phenomenal office of the President of the United States without reminding them of their phenomenal calls. Let’s just leave natural gas and weather out of this for the minute. 

The IEA said that already in the fourth quarter of 2016, stocks in member countries of the Organization for Economic Cooperation and Development fell nearly 800,000 bpd, the largest drop in three years, the IEA said. The End-December inventories were below 3 billion barrels for the first time since December 2015, even though stocks continued to build in China and volumes of oil stored at sea increased.

This comes as demand growth looks phenomenal. The IEA raised estimates of global oil demand growth in 2017 by 100,000 bpd to 1.4 million bpd, citing recent improvements in industrial activity. Per Reuters this will represent a fairly-strong increase considering that demand increased by 1.6 million barrels this year. But keep in mind that the IEA has a history of overestimating oil demand growth. And is the IEA considering the impact of a phenomenal tax cut from a phenomenal country and phenomenal oil consumer like the United States. We could see that US tax cuts sets off phenomenal demand growth that will beat expectations leading to a phenomenal drawdown in global oil inventories.

This is happening even as the U.S. Department of Energy is selling another 10 million barrels (of oil from the government's emergency crude reserve in late February. That is in addition to the 6-million-barrel oil it has sold last week which held us see a phenomenal increase in weekly crude oil inventories. The DOE says there will be more sales in march/. The Target sale is 25 million barrels overall and we know that of half of that target will be finished by the end of the month. So, based on the tightening global market it is a phenomenal time for those buyers of SPR oil because it looks like in the future it will look like a phenomenal price.

A new phenomenal report by Goldman Sachs says that a  proposed U.S. border-adjustment tax would make fuels that provide half the world’s energy cheaper for everyone but the United States. Reuters reported that although U.S. LNG exporters would profit, American consumers would see minimal gains from lower global prices as they use little imported gas or coal, Goldman said. The plan may also spur deal activity in the U.S. as LNG companies seek to maximize the benefits of the tax. Canadian gas prices would have to fall relative to the U.S. benchmark at Henry Hub in order to remain competitive.

“A U.S. shift to a border tax adjustment would lower global coal and non-U.S. LNG production costs via the U.S. dollar appreciation channel,” Courvalin said in the report. “There would be little impact on U.S. gas supply costs and domestic coal-to-gas switching and as a result Henry Hub prices would likely remain unchanged.”

Natural gas is not so phenomenal. Despite a large withdrawal from storage the weather is not staying cold. While the market retreats, it will do cause a drop-in production but the market does not care because it believes that for all practical purposes that winter is over. Even as some weather forecasters like Joe Bastardi say that that is not the case the market seems like iota wants to test below $300.