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 prices attempt at a price recovery was thwarted somewhat by the American Petroleum Institute (API)report that came out with the mysterious supply report especially in regards to crude oil. Oil traders were scratching their heads how on earth could you possibly have an almost record-breaking 3.567 million barrel drop in the Cushing, OK delivery point but yet see overall crude supplies increased by .806 million barrels. If true, the number doesn’t make a lot of sense it would probably suggest that U.S. imports surged last week to record-breaking levels or we saw an inexplicable increase in one of the other pads but on the face of it traders are skeptical and I think that’s one of the reasons why the price of oil is coming back.
It’s also were a little strange as the API reported a big 3.307 million barrel increase in gasoline supplies even as reports that gasoline demand surged back from the drop in the post-holiday. Reports say that gasoline demand surged over 2% last week. The distillate inventory drop of 1.225 million barrels was pretty much in line with expectations and not a surprise while it is unlikely that the Energy Information Administration report will show similar numbers if it does an increase in crude supplies would break the streak of eight consecutive weeks of falling supply.
Oil prices should get a bounce as the market is past freaking out about the new wave of Covid 19 infections. It was reported that Johnson and Johnson’s shot as effective against the delta variant is one of the concerns that the market is having. Will other vaccines effectively fight off this new wave of the virus? So far Johnson and Johnson say it will and other providers of the vaccines seem to be working quite well against the new strain of the virus.
The experts are saying that the biggest threat to people are people that are not vaccinated to this new strain and we are seeing a big uptick in infections and hospitalization’s but even with the uptick we’re still way down from what we were during the peak of the pandemic and more than likely this increase is not going to have a measurable impact on demand. Well some people may want to work out of the office a little bit more until this new strain is under control the general feeling is is that this should not derail oil demand, nor will it stop what should be a continuing trend of falling supplies. There’s been a lot of talk about the OPEC increase in production and as we have said before that increase in our view is barely enough to get by, it’s only going to keep up with seasonal demand fluctuations and it really will not add to the supplies in the second half of the year that should continue to fall in less we see a dramatic drop off in demand.
This could end up being bullish for oil but negative for corn that is hurting from drought. Reuters reports that a bipartisan group of U.S. senators introduced legislation on Tuesday that would eliminate a national mandate requiring oil refiners to blend corn-based ethanol into their fuel mix – a proposal that would slam corn growers and is likely to face vehement opposition from the farm lobby.
Republican Senator Pat Toomey from Pennsylvania and Democratic Senator Bob Menendez from New Jersey, part of the group introducing the bill, represent states with oil refineries that claim the mandates are expensive and threaten refinery jobs.
Lawmakers from both states have been pushing the Biden administration to relieve refineries of their obligations under the U.S. Renewable Fuel Standard, which was enacted to expand the market for U.S. renewable fuels and boost energy independence.
Democratic Senator Dianne Feinstein from California and Republican Senator Susan Collins from Maine joined Toomey and Menendez in introducing the bill. They say that other biofuels have lower greenhouse gas emissions, though ethanol proponents argue the product is a good option to help fight climate change now according to Reuters. Stay tuned we’ll see how this plays out.
The Biden administration is giving in to Germany on the Nord Stream 2 pipeline is going to be viewed as a big geopolitical blunder Russia understands that it is very important if they’re going to dominate the world you have to nominate energy. If you’re going to dominate your neighbors you have to be able to cut off their supply, This is a bad move and Russia is smiling while the rest of the world should be frowning.
It’s looking like the correction on oil is pretty much over though if we get a bad EIA report or a bad headline on Covid we could try to retest the lows, but more than likely it’s very close to the bottom catchers could use this dip as a possibility to hedge production because we really believe that the market is still going to be under supplied going into the end of the year. We still expect higher prices. We did predict that we could get a correction right on the 4th of July and we did this is not abnormal and we still believe the fundamentals for this market are very very strong swing traders and day traders obviously have had some great opportunities to pick up a few bucks on the swings though the margin from the CME Group has gone higher. The natural gas market is exploding as it continues to see record demand for LNG exports, lower U.S. production by comparison and the possibility of very hot temperatures keeping cooling degree days high. The natural gas market seems to be changing from the past few years where we were plagued with oversupply. Now of course we’re going to have the tightest market we’ve seen in many years and this could lead to sharply higher prices for heating bills this winter. Probably a good idea to put on some hedges before the cold sets in.
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