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
What is it, Thanksgiving already? Oil prices plunged in what seemed like a holiday-like sell off. Oil prices fell below support as reports that China says that a release from its oil reserve is in the works. Reuters reported that, “The Biden administration has asked some of the world’s largest oil-consuming nations – including China, India, and Japan – to consider releasing crude stockpiles in a coordinated effort to lower global energy prices, according to several people familiar with the matter. China’s state reserve bureau said on Thursday it is working on a release of crude oil reserves although it declined to comment on a U.S. request to the world’s top consuming nations to tap stockpiles to ease global energy prices.
This comes against a backdrop of a potential increase in US interest areas along with predictions that the global oil market will fall back into a supply versus demand surplus next month from the International Energy Agency and OPEC. They base that prediction largely on fears of rising cases of covid 19 and just some of that transitory inflation-like thinking. I think that that prediction could turn out to be wrong and prices might rise as a release from global oil reserves would only serve to inspire a big surge in demand.
Yet even though the oil market looks terrible in the short term and we could see a test of $75.00, we think the forces that are driving prices lower are merely feeding into a correction that generally happens as we get close to the U.S. Thanksgiving holiday. If you look at the Thanksgiving holidays for the oil market in the last couple of years, they are always challenging. Volume seems to dry up and we gets some crazy moves, so we have to be on guard for some extreme volatility. From a big picture viewpoint, this break should be an excellent opportunity to put on option strategies going out a couple of years.
As far as China releasing oil from their reserve, we’ve been there and we’ve done that and it has had little impact. The last time they did this, it had only a short term impact on prices and then prices went higher. It’s what you would normally expect. The bigger issue, of course, is will China release in conjunction with a bigger release from the U.S. and Japan. We have seen some pretty sizable releases from the SPR the last two weeks, over 3 million barrels. Those releases were part of a bigger predetermined release but the size of the releases has been raising eyebrows. Is the Biden administration already starting a major SPR release? And if so, it is likely that it will backfire making oil much more expensive in the future. There may be the opportunity over the next few weeks to bottom fish for some long-term options.
The Wall Street Journal reports that, “Biden called on the Federal Trade Commission to investigate whether oil-and-gas companies are participating in illegal conduct aimed at keeping gasoline prices high, in the latest effort by the White House to respond to public concerns about costs for everything from fuel to groceries. Outside analysts expressed skepticism that the FTC would find enough evidence to substantiate Mr. Biden’s allegations, and they said the president has few options for quickly lowering gasoline prices. In a Wednesday letter to FTC Chair Lina Khan, Mr. Biden alleged that there is “mounting evidence of anti-consumer behavior by oil-and-gas companies.” The president said gasoline prices had risen about 3% from a month earlier even as the price of unfinished gasoline, which hasn’t yet been blended with other liquids for use in vehicles, was down more than 5%.
This again is a ridiculous attempt by the Biden administration to deflect blame from rising gasoline prices. They point to the fact that the oil company profits have doubled from 2019 but they have to keep in mind that is coming back from near bankruptcy for a lot of these companies. Biden’s continued attacks on the U.S. oil and gas industry continue as they demonize companies for making profits. They have made U.S. oil and gas companies and their workers the enemy and are continuing to make them the enemy and is one of the reasons why the Biden agenda is failing. People are sick and tired of this charade. Their poll numbers are plummeting because people can see through the hypocrisy of trying to shut down oil and gas production adding regulations and taxes and then blaming the oil and gas companies for prices rising.
Democrats love to run fake investigations. This is proven by the fake Russian charade that costs taxpayers billions of dollars. They have no qualms about spending U.S. taxpayer money on fake investigations when it suits their political purposes. The Biden administration’s fake investigation of the oil companies is bad for the economy, it’s bad for free enterprise and bad for capitalism. Their blunders have put a huge burden on the poor and middle class in this country.
Reuters reported that, “US Gasoline stocks have fallen by a total of -13 million bbl over the last six weeks to just 212 million bbl, the lowest seasonal level since 2017 and before that 2014. Part of the reason why supplies are so tight for gasoline is that we had a hurricane. Maybe the Biden administration forgot about that. Gasoline demand has gone up while the Biden administration threatens more regulations on US refineries not to mention taxes that will be paid by the consumers.
When it comes to energy the Biden administration wants their cake and eat it too. They want to go green, shut down pipelines, put on drilling moratoriums, tell investors that they’re wrong if they invest in fossil fuels and then they complain when prices rise. Words have meaning and the policies of the Biden administration are responsible for rising gasoline prices. OPEC and Russia’s growing control over the global oil supply is in part because of the Biden administration’s pullback from U.S. oil and gas production.
We will hear from analysts and fact checkers saying that the energy crises is not Biden’s fault. When I predicted that all of this this would happen if Biden got elected, most fact-checkers said no. We were told that the cancellation of Keystone Pipeline and threats to kill Line 5 in Michigan and North Dakota access line would in no way impact prices but yet it did. Oil producers cut back because of fears of what could come next. Investment in fossil fuels dried up as pension funds and other major sources of capital stayed away.
We heard from analysts that gasoline prices would not rise or that they would top out by the 4th of July. When that did not happen, they now blame OPEC and those darned greedy capitalist oil companies. It is clear that the fact checkers need to be fact checked.
Natural gas prices were up on colder weather and the cold shoulder from Belarus to Europe. Belarus cut off natural gas supplies to Europe but said it was only maintenance that was “unplanned”. It is unplanned maintenance of a major natural gas pipeline after Belarus president Alexander Lukashenko warned Europe that he might use natural gas as a weapon. This Putin lackey is sending a message. Putin and Lukashenko are playing a game of good cop, bad cop when it comes to supplying Europe with natural gas this winter. Make no mistake about it, they’re sending signals to Europe that if they are crossed in any way they can make them freeze.
Reuters did report that Russia’s Transneft pipeline monopoly said on Thursday that repairs were complete on a section of the Druzhba oil pipeline in Belarus and that oil pumping would resume on Thursday evening, the RIA news agency reported. So Europe, I hope that makes you feel better.
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