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
Please release me, let it go! Oil prices are getting more pressure as there is mounting evidence that global governments might exercise a futile effort to try to manipulate global oil markets. Politicians that have helped create inflation pressures with massive money printing along with the ill-planned energy transition, are attempting to put out the oil inflation fires with water that almost all experts will tell you is bound to fail.
Bloomberg News reported that Japan and the U.S. may make a joint announcement on the release of oil reserves as soon as this week in a bid to rein in price increases, according to the Yomiuri newspaper. Prime Minister Fumio Kishida told reporters the previous day that the government was reviewing what steps it could take to tackle the issue in coordination with other countries. After the OPEC+ cartel of oil producers rebuffed calls to produce more oil, Joe Biden has sought to build international support for using the stockpiles of consuming countries to bring down prices that reached a seven-year high of $85 a barrel in late October.
While Japan’s Oil Stockpiling Act does not allow for the sale of reserves due to high prices, both the government and the private sector currently hold more reserves than the minimum required under the law. The government is considering releasing part of these excess reserves, which it believes can be sold without breaching legal restrictions, Yomiuri said Sunday, citing government sources. There is a reason why Japan’s law does not allow oil released from their reserves for high prices. It is because when you release oil due to high prices it only distorts the market. The best way to bring down high prices is high prices. By allowing more oil to come on the market, it won’t discourage demand thereby will make supplies tighter.
I believe that OPEC may respond to any release from global reserves. OPEC could easily cut back production their own if oil is released.
Natural gas is in a key area. EBW Analytics says that natural gas survived a critical test of technical support in holding the 100-day moving average on a closing basis throughout last week, triggering Friday’s move higher. Technical may again play a large role this week as the December contract approaches options expiration on Wednesday and final settlement Friday. In the last three months, the front-month gained an average of 49.2¢ on its final two trading days. A firming spot market may further increase the likelihood of NYMEX natural gas gains as LNG approaches new highs, early November’s natural gas supply increases dwindle, and colder weather lifts space heating demand—tightening physical market supply/demand fundamentals.
Technically, the crude oil market looks like a buy near the overnight lows. Below $75 there should be good support in that area and probably it’s good to start putting on some position trades. Still, we have to be cautious because it is the Thanksgiving holiday where we have seen some notorious moves. It wouldn’t surprise me that if a reserve release is going to happen, politicians may try to exploit the light volume.
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