Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
Oil is trying to hold ground after Friday’s fear-based market sell-off. Tariff fears and now talks of global growth fears after a sub-par jobs report, not to mention a rising rig count, sent oil lower. Yet current strong demand, falling OPEC productions as well the possibility of a major reaction by the U.S. after Syria allegedly crossed the chemical weapons line in the sand. President Trump said that Syria would pay a big price for this “mindless chemical attack” and called Syrian President Bashar Assad an “animal”. President Trump said that as far as a response from the U.S., he wouldn’t take anything off the table. This threat comes as the Russian military said on Monday that two Israeli F-15 war planes carried out airstrikes on a Syrian air base near Homs on Sunday, the Interfax news agency reported.
Oil was already under pressure when Baker Hughes reported that drillers added 11 new rigs. I thought they promised low oil and gas prices because of shale oil. How is that working out? You just must go to the pump to find out. Trilby Lundberg, of the Lundberg survey, reminds us that is isn’t only about supply but demand. Lundberg says that the U.S. average retail price of regular grade has climbed nearly 8 cents in the past two weeks to $2.7364. It is up 14.63 cents gal. over the past six weeks, driven mostly by higher oil prices, and to a far smaller degree by the annual higher-cost Spring/Summer blend specs which are still rolling out.
The recently lower oil prices mean that any pump price rises from here are likely to be small. Unless oil prices reverse direction and rise again, we are probably either at or near a peak pump price for the season. As of now the U.S. downstream industry is faring a bit better, with both refiners and retailers having recovered some gasoline margin since March 23. However, they both remained squeezed and under pressure to seek further margin improvement when possible, according to Lundberg.
S&P Global Platt’s OPEC survey on Friday showed OPEC production fell in March to an 11-month low of 32.14 million b/d. Venezuela continued its decline to the lowest output level since Platt’s began its survey in 1988, except for an industry strike in late 2002 and early 2003, and Angola plummeted to an 18-month low. Libya and Nigeria also posted their first 2018 monthly declines in production.
While oil looks technically weak in the short-term the truth is that we should see prices snap back soon. Even with a weak headline number on jobs. wages are rising and demand for gasoline is strong. We will see another big drop in U.S. crude supply this week and that should keep the bears at bay, in fact if you are short you had better be ready for a big price snap back. Despite all the fear we have the highest global market we have had in a decade.
Questions? Ask Phil Flynn today at 312-264-4364
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