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 continuing its comeback, up 6 sessions in a row, as it is more apparent that some of the reasons that oil sold off on were not valid in the first place. The talk of a U.S. recession obviously was way overstepping reality, especially after that blockbuster U.S. jobs report on Friday. Now with the Wall Street Journal reporting that Saudi Arabia plans to over comply with production cuts by reducing exports by 800,000 barrels a day should be a signal to the market that supplies will soon tighten. The Saudis are signaling that they want $80 a barrel and they probably will get it.
The economic backdrop is looking better as the Federal Reserve, of course, signaled that they would be flexible with its path of interest rate hikes and balance sheet wind down. Yet, the recent break on oil that caught almost everyone by surprise has already caused a pull back in investment and drilling in the shale patch. Over estimations of shale production and underestimations of OPEC’s resolve to cut output should get oil back on track. The Christmas Eve price massacre is now looking more like a capitulation bottom and now it looks like we will get back into a undersupplied market in just a matter of months.
The big price collapse after President Trump granted waivers on Iranian oil, led to a run on the oil bank. But now we could start to see a reversal of that massive selloff as OPEC and Saudi Arabia over adjust.
The Financial Times are reporting U.K. North Sea exploration fell to a 50-year low, extending a decline as investment could raise questions about the long term viability of the area. 10 billion to maybe 20 billion barrels of oil equivalent are reportedly left in the North Sea, and it is obvious that we will need much higher sustained prices to get it.
Reuters is reporting that an oil tanker exploded off Hong Kong’s southern coast Tuesday, killing one crew member and leaving three others missing at sea. Authorities said the Vietnam-registered vessel burst into flames as it prepared to refuel. Twenty-one crew members were rescued from the waters.
Gasoline Shortages in Mexico! The AP is reporting that “Mexicans are scrambling for gasoline amid long lines at gas stations and widespread shortages prompted by a change in distribution methods aimed at stemming fuel theft. The AP says that State oil company Petroleos Mexicanos said the use of more secure transportation methods has resulted in delays for fuel delivery to gas stations in the states of Guanajuato, Hidalgo, Jalisco, Michoacan, Mexico and Queretaro. It is urging consumers not to panic or hoard gasoline, promising that supply will soon stabilize. Frantic consumers have made a run on the pumps and social media has been filled with images of gas station signs saying they are out of fuel, and consumers comparing the thin supplies to scarcity for basic goods like bread and milk that plagued Mexico during the 1970s. The shortage has given ammunition to government critics, who say many of the new administration’s policies and goals are throwbacks to past decades.”
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