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The Energy Report

Phil Flynn
http://www.pricegroup.com/
pflynn@pricegroup.com


Fire Cold Rebuild. The Energy Report 01/10/2025

Oil prices, natural gas prices, as well as other commodities are surging this morning and fundamentals becoming more obviously bullish and the fact that it’s going to take a lot of demand for a lot of commodities to rebuild devastated California. Lumber and copper and other communities are getting prepared for a surge of demand. Oil is worried about meeting record demand against what is going to be the coldest January in 11 years and that is leading to surging heating oil crack spreads as well as a surge in other oil products around the globe. Refiners have to worry about the power outages and pipeline freezing. Producers must worry about ice crystals that can shut down the extraction of hydrocarbons.

Reports of massive buying by India China and other countries ahead of what could be sanctions coming down on both Iran and Russia and Venezuela after the President Trump inauguration. Snow in Texas and concerns about freezing off gas wells in refineries that are trying to prepare for this cold blast or hunkering down as prices surge. Now the markets must face up to the reality of oil supplies that are below average in almost all depositories around the globe.

Bloomberg Reported that this week, two Indian state refiners bought up to 6 million barrels of Oman and Abu Dhabi’s Murban crude for prompt loading in February attributed the purchases to a shortfall of Russian spot cargoes.

Chinese buyers, including state-owned Unipec, as well as private refiners in Shandong, lifted imports of Angolan. Traders also said a local processor picked up prompt supplies of Abu Dhabi oil.

Bloomberg Says that the surge in buying interest from Indian and Chinese buyers has stemmed not only from fewer and pricier offers of Urals, ESPO and Iranian Light crude, but also from fears of more sanctions on tankers used to transport these cargoes and the implications on refiners and others in the supply chain, traders said. The outgoing Biden officials have added to restrictions on tankers and pledged to take a tougher stance on Russia.

President trump of course also is talking tough with Canada saying we don’t have anything that they need except for oil. Reuters reported that U.S. crude oil imports from Canada rose last week to the highest on record, data from the U.S. Energy Information Administration (EIA) showed on Wednesday, ahead of incoming U.S. president Donald Trump’s plans to levy a 25% tariff on Canadian imports.

Many U.S. oil refiners, especially in the Midwest, are geared specifically to run heavier crude oil grades sourced from Canada.

Another sign of strong energy demand came in the form of Ethanol. Quantum Commodity Intelligence, that US ethanol exports rose to a seven-month high in November as flows to Europe more than doubled to a five-month high and the flow to Asia hit a two-and-a-half-year peak, according to the latest customs data. Total exports of denatured and undenatured ethanol were reported at 728,823 cubic meters in November, up 32% from the previous month and 62% higher compared to November 2023.

In remember the surge in prices came after the EIA signaled that they had been underestimating demand and overestimating production. The energy report

We here at the energy report have been warning for some time that we were concerned that the market is too complacent with relatively tight supplies. That’s why we’ve been recommending to be hedged for this type of situation.

Its Algo a-go- go. Let’s give a cheer for the humans! Humans win algo’s loose!

There have been a lot of complaints about algo traders in the crude oil market. Some complain they distort the market or jump in with a massive number of contracts on dubious headlines and some claim they reduce real liquidity.

Far be it be from me to support those complaints, but I must admit I rolled my eyes at some oil moves that seemed to come out of nowhere. I admit I have been frustrated at times with the crazy moves that have been driven by computers and not humans.

Regardless, I have been around long enough to see how many trading systems have come and gone over the year and now perhaps the algo traders may have finally played out their hand.

Instead of printing money like they had for most of the last decade or so, now it seems they are on the losing end. What’s more they are reducing their exposure to the oil market.

Bloomberg News pointed out that algorithmic traders are pulling back from the commodity markets after the second successive years of losses.

Bloomberg citing data from the Bridgeton Research group that provides analytics on computer generated trades. In fact, it seems that humans beat computers for the second year in a row. Go humans!!!

“With losses mounting, some of these firms are already reducing their exposure in crude oil, diminishing their impact on a market in which they had amassed a formidable presence in recent years. This could help traders who focus more on supply and demand balances return to the driver’s seat and normalize daily price moves in the futures market.” (Supply and demand, hmm, an interesting concept for a market)

Bloomberg quoted CIBC saying that “Humans did have more success in 2024 than algos, which is different than the last couple of years,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group.

CTAs are estimated to have reduced the weight of crude in their portfolios to just 2% compared with 4% in July 2024, softening their impact on market movements and reducing their share of open interest, Babin said.

And we’re hearing more talk from other algo traders that are going to reduce their exposure to the crude oil so maybe they will find some other market to pick on. So, beware humans. An algo system may be looking at your market!

Natural gas is surging as well on the cold weather forecast the possibility of a squeeze is real further out February it’s going to be critical for this market if we find out that February repeats January as far as demand, we could see natural gas prices double.

Keep Praying for California.



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Phil is one of the world's leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide.

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Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Alaron Trading Corp. its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

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