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Phil Flynn

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 oil market continued it’s come back as the bull market is firmly re-establishing itself. The market surged with reports that Russia is ready to introduce a ban and gasoline exports as soon as next week amid record high wholesale prices on the Russian exchange. Bloomberg news reported that the price of 95 octane gasoline exceeded 60,000 rubles for the first time in history of the Saint Petersburg international Mercantile exchange. This report shows that the global market for product is tight and is also very supportive for the price of oil. The news drove our RBob gasoline futures and crude oil went along for the ride.

This news is not insignificant because according to Bloomberg, Russia exported 5,830,000 tons of gasoline or 15% of its total production. That means the buyers of Russian gasoline will have to find product elsewhere and we know, based on current inventory numbers, that those supplies are getting harder to find.

It’s has also been reported that China released 20 million barrels of sour crude to try to cool down oil prices. We think this will backfire on China because sometimes when you release oil to try to cool down prices it only feeds a stronger sentiment in the market. The reason why supplies are tight is due to demand being ravenous so those extra barrels will only encourage more demand because prices will be lower.

So sum sum things up for the crude oil market, we have to look at all the following. We have seen the return of gasoline demand. Jet fuel demand is coming back as well with the re-opening of the economy and trade is going pretty strong. We still have to live with some concerns about covid-19 variants. It does not look like we’re anywhere close to lifting sanctions on Iranian oil. And OPEC plus is showing extreme discipline on the production side. Supplies at the Cushing, Oklahoma delivery point have been falling and are getting to the lowest levels we’ve seen since 2018 and could be headed towards their minimum operating levels. So what we’re saying is basically most of the fundamentals driving the energy sector are still extremely bullish. Unless we get a headline to the contrary, one would assume that we are going to resume the bull market and stretch out to new highs in the next couple of weeks.

John Kemp at Reuters points out that, “U.S. natural gas prices have hit multi year high which should conserve the scarce stocks of natural gas. Camp says he expects more gas focus drilling and switch back towards coal fire generation this summer. In the meantime the heat wave that’s going to come across the country is going to keep those air conditioners humming. Electricity generation is going to be strong and that is going to support natural gas prices.

Thanks,
Phil Flynn

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