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
The global oil market has come a long way since oil prices plunged a year ago into negative territory. Now a year later the strength of the market is a reminder of how low prices can cure low prices and that a price drop that shocks the market because of oversupplies creates the recipe for shortages in the future. The fact is that the shock of low oil prices forced oil producers around the globe to cut back not only production but investment and because of some of the crazy predictions at that time that the price of oil would never rise again had them cut back too much. Predictions that the world had hit ‘peak oil demand” and that oil demand would never recover looks laughable now especially with the track of demand growth we are seeing in Asia and to a lesser extent the United States.
Even the predictions of the world going carbon neutral will cause peak demand do not look realistic as carbon emission increases are soaring and China is adding more coal plants like crazy despite the claims by the Biden Administration that the U.S. is falling so far behind China when it comes to green energy technology. Oil Price reported that “Despite commitments to become a net-zero emission economy by 2060, China—the world’s biggest carbon emitter—commissioned more coal-fired capacity last year than the rest of the world retired.” China’s coal boom in 2020 more than offset the retirements in coal capacity in the rest of the world, leading to the first increase in global coal capacity development since 2015, a report led by Global Energy Monitor (GEM) found. China commissioned 38.4 gigawatts (GW) of new coal plants in 2020, offsetting the record-tying 37.8 GW of coal capacity retired last year, the report showed.
This comes as the International Energy Agency says that global CO2 emissions from energy could rise almost 5% this year, suggesting the economic rebound from COVID-19 could be “anything but sustainable” for the climate. The IEA’s Global Energy Review 2021 predicted carbon dioxide emissions would rise to 33 billion Tonnes this year, up 1.5 billion Tonnes from 2020 levels in the largest single increase in more than a decade.
Of course, for the world to get behind those carbon goals the experts must blame everything on climate change from a rash of potholes in the streets of London and the Chicago Whites Sox slower than expected start on Climate change. In fact, due to Climate change, 12 of Europe’s biggest clubs announced plans to break away from the established soccer order and form a Super League.
Yet at the climate change summit today China talked little about Climate change but chided the Biden Administration from pushing everybody around. Bloomberg News reported that Chinese President Xi Jinping called for greater global economic integration and warned against decoupling while calling on the U.S. and its allies to avoid “bossing others around.” “International affairs should be conducted by way of negotiations and discussions, and the future destiny of the world should be decided by all countries,” Xi said on Tuesday at the Boao Forum on Asia, without naming the U.S. specifically. “One or a few countries shouldn’t impose their rules on others, and the world shouldn’t be led on by the unilateralism of a few countries.”
The China exchange is not giving us confidence in the US dollar that is falling. Now oil is looking once again at Libya that had seen stability on oil output only for that to go away. Reports say that Libya’s oil flow Libya’s oil production has fallen below 1 million barrels a day for the first time in months as a budgetary dispute hinders the OPEC member’s ability to fix war-damaged infrastructure. Reports say that the National Oil Corp. stopped exports from the eastern port of Hariga, it said in a statement late Monday. The state firm said the central bank’s “refusal” to release the money to the energy sector had forced local producers to pump less. Closure of key Libya oil port (Hariga) and loss of 250,000 b/d production is entwined with new government budget that parliament is debating. NOC wants an expanded budget for overdue repairs, and if approved, wants no delay in funds being transferred to NOC.
Iran is showing optimism that they are a path to get back into the 2015 nuclear accord. Oil traders are still trying to price in what that means for the oil market since the Iranian have been breaking sanctions anyway. Peace talks between Iran and Saudi Arabia are supposedly happening but reports that the Houthi rebels fired another drone attack on Saudi Arabia can’t be helping the matters. As for OPEC Plus, they seem to be loving life since the crash of oil a year ago. OPEC plus was a big part of the oil price crash as Saudi Arabia and Russia decided to get into a production war just as the global demand picture stopped dead because of the global Covid shutdown. President Trump was instrumental in ending the production war as well as engineering the oil price comeback. Yet now with the Biden Administration focused on climate change it seems that OPEC Plus Russia has regained the most influence over global oil prices. In fact, so much so they can cruise through further OPEC Plus meetings.
Tass reports that “Ministers of countries participating in the OPEC+ oil production limiting agreement are discussing a shorter format of talks in late April. They can abandon the ministerial meeting and leave the meeting of the Joint Ministerial Monitoring Committee (JMMC), a source in OPEC told TASS on Monday. “Such an idea is discussed,” the source said. OPEC+ co-chairs, Russia and Saudi Arabia have not decided in this regard yet, he noted. The JMMC meeting and the ministerial meeting are scheduled for April 28 of this year.” I guess it is more fun to drag out meetings when you have the fine dining of Vienna as opposed to these virtual meetings.
As far as the technical on oil we are on the verge of breaking out into a full bullish run. If June Crude can hold 6350, we should resume the climb for WTI to test $70 a barrel. Tonight, American Petroleum Institute report may give us a further boost. Private forecaster Pat Bourque is even saying that we could see a 6 to 9 million oil draw. If that is true, then we should start to rock.
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