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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 bull gave into high anxiety as the Fed, OPEC, and rumors of an SPR release and a surprise build in weekly crude supply caused profit-taking. While the oil market tried to recover late in the session, it was thwarted by an announcement right before the official NYMEX close that the EU said nuclear talks between world powers and Tehran on reviving the Iran nuclear deal will resume in Vienna on November 29th. Yes, the time Iran wanted or are they just playing with world leaders to buy some more time to continue to improve their nuclear weapons desires and wreck havoc in the region. Life has been pretty good for the Iranian regime as they’re able to sell their oil without much resistance and they seem to have worked around the sanctions especially because the Biden administration has shown no desire to enforce them.

This shook a market that was already shaken by the starting of Fed tapering and fears that OPEC might give in to the full-court press by world leaders to raise oil output. Also fears the International Energy Agency (IEA) might release oil to thwart OPEC and try to scare them into oil production submission but maybe they will restrain because that would cause a geopolitical and potentially an economic nightmare. Not that you can put it past world leaders that have created a self-inflicted energy crisis putting the goal of lowering carbon ahead of the reality that there are no viable replacements for the capacity that they have taken offline.

The rumors started after Joe Biden on Saturday urged major G20 energy-producing countries with spare capacity to boost production to ensure a stronger global economic recovery. Yet it is strange that he is at the same time is taking measures to slow US investment in oil and gas and imposing new regulations that will make it harder for US producers to raise output. The Biden administration is celebrating its assault on US Energy Producers with new methane regulations that will cost oil consumers billions of dollars and yet will turn to OPEC, with their production methods releasing more methane by far than US producers. The U.S. Environmental Protection Agency announced Tuesday it was proposing stricter regulations on methane emissions both from new and existing sources, seeking comments from the public on its proposed action.

The EIA stocks report was viewed as bearish but was it as bearish as the headlines would have you believe? We did get a higher than expected 3.3 million barrel increase in crude supply but that was enhanced by a sizable 1.6 million barrel release from the Strategic Petroleum Reserve. We had a shocking 2.2 million barrel increase in distillate supply but the focus should be on gasoline where supply is still too tight. U.S. gasoline stocks fell by 1.5 million barrels in the week to 214.3 million barrels, the EIA said, putting those inventories at their lowest levels since November of 2017. Gasoline stocks at both the Midwest and East Coast hit their lowest levels since November of 2014, boosted by steady demand for road fuel, which accounts for nearly half of U.S. consumption according to Reuters.  Besides, crude supply is 6% below the average for this time of year. The gasoline supply is 3% below average and distillates 5% below the five-year average for this time of year. Plus there is still a pain in propane supply. Propane increased by 0.4 million barrels last week and is about 14% below the five-year average for this time of year. Total commercial petroleum inventories increased only by 0.6 million barrels last week.

So today the big show will be OPEC. Biden believes that if he tells OPEC to jump they should ask how high. His energy policy is, in reality, a hot mess with mixed signals about wanting lower energy prices for US consumers but at the same time he is doing everything he can to raise prices. Biden blames OPEC for the global supply shortage and that’s like blaming Abraham Lincoln for getting in the way of John Wilkes Booth’s bullet! It has been Biden and his party that has sent a signal to US energy producers that their supplies are not welcome. It was also a house panel last week where some representatives suggested that energy production should be criminalized and that CEOs should resign in part because they don’t donate enough to the democratic party and because of their crimes against the environment. Biden’s call on G20 producers to raise oil production but at the same time thwart US production is just crazy. It’s nonsensical. Is it any wonder why the American people have lost faith in the democratic party?

Natural gas rallied on a cooler shift in weather and reports that our buddy Vladimir Putin is restricting supply! Use weakness to get hedged. Reuters reported that China’s daily coal output hit 11.67 million tonnes on November 2, rising around one million tonnes from early October, close to a record high this year amid a raft of measures to ramp up production, according to the country’s state planner. The National Development and Reform Commission (NDRC) published six statements late on Wednesday, showing recent coal production and its efforts in reining in prices.

Thanks,
Phil Flynn

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