Peace to Pieces. The Energy Report 07/19/19
Phil Flynn of The PRICE Futures Group - InsideFutures.com - Fri Jul 19, 8:40AM CDT

Oil prices that had fallen dramatically off hopes of peace talks with Iran reversed course on reports that the U.S. had shot down an Iranian drone in the Strait of Hormuz.  President Trump said that said the USS Boxer took defensive action after the drone closed to within 1,000 yards of the warship and ignored multiple calls to stand down. The president called it the latest “hostile” action by Iran. That along with some very dovish comments from Fed officials may have saved the oil from drifting back into bear market territory.

Iran denied that the U.S. shot down one of their drones, saying that all their drones returned safely. Of course, that is the same Iran that denied seizing the Panamanian-flagged tanker MT Riah and 12 crew members, until they admitted to it yesterday.

The oil market is now acting like the whole peace process with Iran has gone to pieces. Yet we are still getting mixed messages from Iran. The Guardian reports that “Iran has offered a deal with the U.S. in which it would formally and permanently accept enhanced inspections of its nuclear program, in return for the permanent lifting of U.S. sanctions.”

The offer was made by the Iranian foreign minister, Mohammad Javad Zarif, on a visit to New York. But the Guardian says it is unlikely to be warmly received by the Trump administration, which is currently demanding Iran make a range of sweeping concessions, including cessation of uranium enrichment and support for proxies and allies in the region.

The Guardian also reported that “Zarif shrugged off a report that Senator Rand Paul was seeking to become a secret emissary between Trump and the Iranian leadership, but would not confirm or deny he would be meeting Paul in his capacity as a member of Congress on his current visit to the US.”

Now the question is whether the Grand Poohbah and Supreme Leader, Ali Khamenei, talks peace because he says that dealing with the U.S. is a waste of time. The Fed though is not wasting anytime assuring the market of lower interest rates. Yet comments from New York Fed President John Williams had to be walked back. Williams set off a firestorm when he said that central bankers need to “act quickly” as economic growth slows. That comment got the market increasing bets for a 50-basis point cut at the next meeting.

Yet the New York Fed took the rare step of qualifying his comments saying that Mr. Williams was drawing from “academic research” and that those comments were “not about potential policy actions.”  Later, Fed Vice Chair Richard Clarida said on the Fox Business Network that cutting interest rates quickly is a “good strategy.”

A more dovish Fed means more support for oil even as there are more demand expectation downgrades. Reuters reported that The International Energy Agency (IEA) is reducing its 2019 oil demand forecast due to a slowing global economy amid the U.S.-China trade spat, its executive director said on Thursday. The IEA is revising its 2019 global oil demand growth forecast to 1.1 million barrels per day (bpd) and may cut it again if the global economy and especially China shows further weakness, Fatih Birol said. Last year, the IEA predicted that 2019 oil demand would grow by 1.5 million bpd but had cut the growth forecast to 1.2 million bpd in June this year. “China is experiencing its slowest economic growth in the last three decades, so are some of the advanced economies … if the global economy performs even poorer than we assume, then we may even look at our numbers once again in the next months to come,” Birol told Reuters in an interview. He said oil demand was hit by a trade war between the United States and China at a time when markets are awash with oil, due to rising U.S. shale production. U.S. oil output was expected to grow by 1.8 million bpd in 2019, which would be slower than the 2.2 million bpd increase recorded in 2018, Birol said, adding “these volumes will come into a market where demand growth is coming down.”

Oil will continue its mood shift, but barring any breaking news it’s time to reverse from short too long. Volatility will continue and as a trader you must be ready to reverse course quickly. That’s why they call it trading.

Natural Gas Heat Wave! Yet you would not know it by the prices. Natural Gas went lower, because despite sizzling temperatures we also have sizzling production numbers. Market watch reported that “The U.S. Energy Information Administration reported Thursday that domestic supplies of natural gas rose by 62 billion cubic feet for the week ended July 12. The data were expected to show a build of 65 billion cubic feet, on average, according to analysts polled by S&P Global Platts. Total stocks now stand at 2.533 trillion cubic feet, up 291 billion cubic feet from a year ago, but 143 billion below the five-year average, the government said. August natural gas NGQ19, -0.17% traded at $2.325 per million British thermal units, up 2.1 cents, or 0.9%, from Wednesday’s settlement. It was trading at $2.335 before the data.”
Thanks,
Phil Flynn

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