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 had a big setback after US inflation readings screamed up 6.1 percent, the biggest jump since 1990, raising expectations that the Fed will have to act to tame inflation. The Biden administration is starting to get that the inflation risk is real and could make this presidency transitory. Biden said he would make reversing the inflation trend his top priority. That caused the dollar to hit new highs for the year, putting downward pressure on oil.
The Biden administration is a master in finding someone to blame for all that has gone wrong and more than likely it could make Fed Chairman Jerome Powell the scapegoat and his time as Fed Chair transitory. Those fears sent the greenback on a tear which helped pressure oil along with fears of steps Biden might take to solve the oil price.
Saule Omarova, a law professor at Cornell University who graduated college in the USSR, and the nomination to be comptroller of the currency said, “A lot of the smaller players in that (OIL AND GAS) industry are going to, probably, go bankrupt in short order — at least, we want them to go bankrupt if we want to tackle climate change.” Of course in the process, they will make a lot of small businesses and poor people go bankrupt as energy prices spike. We will see a lot of good-paying jobs lost as well. Inflation on energy is all part of the plan and it’s working. Break the energy industry, break the middle class and break you.
The President said that, “The largest share of the increase in prices in this (CPI) report is due to rising energy costs — and in the few days since the data for this report was collected, the price of natural gas has fallen. I have directed my National Economic Council to pursue means to try to further reduce these costs, and have asked the Federal Trade Commission to strike back at any market manipulation or price gouging in this sector.”
This is just another spurious charge making accusations with no proof of price gouging. This is either political cover or just another sign that the Biden administration has a total disdain for the US oil and gas industry. They must prefer that OPEC and Russia produce our oil and gas needs. Natural gas fell because the weather got warm and Russia increased supplies that they have held back to the green energy transitioning counties in Europe. Maybe Biden thinks he can control the weather and Putin.
They would rather have U.S. producers go out of business. The Biden administration said it best they said the main reason we’re seeing inflation go up is energy and it is energy that they have the most power to cool off. Not with an SPR release or an oil export ban but a signal to the market that they want to encourage shale oil and gas production, not put it out of business. Biden has driven up the cost and added to the oil risk premium because we are now more dependent globally on Russia and Saudi Arabia to produce oil and gas. Biden’s pipeline cancellations, threats of canceling more pipelines, drilling moratoriums, threats of criminalizing oil and gas production have made a toxic environment for investment for oil and gas. They’re willing to risk the economy to save the planet for their agenda and their green energy lobby and they’re more than willing to let you pay these prices. If your company goes bankrupt or if you go bankrupt that’s not their problem.
While energy was the biggest influence on inflation, it was far from the only one. Used cars cost up 28.1%, meat, fish and eggs up 11.9%, new cars up 9.8%, food at home up 5.4% and restaurants up 5.3%, transportation up 5.3%, apparel up 4.3%, shelter up 3.5%. Yet consumers are feeling the gasoline pinch more than anything as Reuters reported that gasoline prices have risen by more than +50% compared with the same period a year ago, among the fastest increases over the last quarter of a century, but from a low base. The compound annual increase over the last two years from before the pandemic has been over +13% per year, the fastest since 2018 and before that 2012.
There is no doubt that the inflation reading put us in premature correction mode. The fundamental outlook on a tight oil market has not changed. The Energy Information Administration (EIA) reported that even with a 3.0 million barrel release from the SPR, commercial crude oil inventories increased by 1.0 million barrels from the previous week. At 435.1 million barrels, U.S. crude inventories are about 7% below the five-year average for this time of year. Total motor gasoline inventories decreased by 1.6 million barrels last week and are about 4% below the five-year average for this time of year. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 2.6 million barrels last week and are about 6% below the five-year average for this time of year. Propane/propylene inventories decreased by 1.3 million barrels last week and are about 14% below the five-year average for this time of year. Total commercial petroleum inventories decreased by 1.2 million barrels last week.
Data from the EIA, while not as bullish as the American Petroleum Institute report, still showed a market that is going to continue to be tight for the next couple of months. We expect that we could test near the lower trendline or Bollinger band and find some support and then start to bottom. Once again this could be a good opportunity to start the position for winter trades as a sell-off is more than likely overdone. The biggest fear that we have is that the Biden administration will do something stupid like release oil from the Strategic Petroleum Reserve or ban oil exports, either one of those things will only have a short-term impact on price and ultimately will only make prices go higher.
Russia was in a giving mood and that helped break natural gas prices. Zerohedge reported that European natural gas prices plunged Wednesday after signs Russian gas flows into Europe were increasing ahead of what’s expected to be a miserable winter of tight supplies and high energy costs. Dutch natural gas futures, the European benchmark, dropped as much as 12% to € 64.14 per megawatt-hour after Russia’s state energy company Gazprom PJSC data showed flows to Europe via Ukraine and Poland increased Wednesday. We like buying this break.
How is the green energy transition going? Reuters reports that, “Camping gear such as gas cookers and lanterns are flying off the shelves of hardware stores in Spain as people fearing energy shortages and potential blackouts prepare for the winter. Despite government assurances that there will be no supply crunch, a surge in electricity prices, partly driven by shortages in Asia and Europe, and a switch in pipelines bringing gas from Algeria have fueled the public’s concerns. Yes! And Inflation Is Transitory!
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