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
Stable energy prices can mean a stable government. Yet the biggest risk to global stability is not climate change but the ill-planned energy transition that could destabilize the globe. The latest evidence of that is Kazakhstan. Protests over rising energy prices turned deadly. Kazakhstan President President Kassym-Jomart Tokaye gave orders for the military to shoot civilians without warning. Torkaye said that after his order to shoot unarmed civilians that “constitutional order has largely been restored.”
Kazakhstan was a former member of the “evil empire” before gaining its independence and is the second-largest non-OPEC crude producer in the OPEC plus group. Their crude production was at roughly 1.61 million barrels a day before the protests. The violence puts shivers into the global oil market because along with Libya, the supplies are not going to be stable and that is raising concerns about global spare production capacity.
Kazakhstan’s Ministry of Energy did acknowledge that there would be a certainty decrease in oil and gas production as they have noted but it’s not because of lack of production ability but export limitations. Maybe he assumes if they murder more people, they can ease those export restrictions.
Bloomberg reported that President Kassym-Jomart Tokayev declared that order had largely been restored in Kazakhstan but vowed to push ahead with a deadly crackdown after Russian troops helped suppress mass protests that had swept the country. Russia and its allies dispatched more troops to help quell the demonstrations and retake the airport in Almaty, with 75 planes used by the government in Moscow to deploy units, according to the Defense Ministry.
Kazakhstan is a major exporter of uranium. Those spot prices soared in recent days. S&P global Platts reported that international metals producers active in Kazakhstan told S&P Global Platts Jan. 6 there had been no specific impact to date on their mine operations as a result of anti-government protests in Kazakhstan’s cities, notably Almaty, despite reports of one copper smelter being hit by a protest. However, concerns were raised late Jan. 6 over the impact on logistics of a lack of telecommunications in the eastern European country, much of whose metals output is aimed for export markets.
The other concern for global oil markets is the continuing strife in Libya. Jessica Resnick-ault of Reuters reported that in Libya, oil output was at 729,000 barrels per day, the National Oil Corp said, down from a high of more than 1.3 million bpd last year, owing to maintenance and oilfield shutdowns. Global benchmark Brent’s six-month backwardation stood at about $4 a barrel, its widest since late November. Backwardation is a market structure where current prices trade at a premium to future prices and is usually a sign of a bullish market.
We do believe that oil definitely is in a bull market. It’s something that we’ve been saying for some time. These global concerns and lack of production or cutting into spare capacity, OPEC is failing to meet its quota, the U.S. is still struggling to bring production back online and in the meantime, the anti-fossil fuel agenda of the Biden administration is keeping investment dollars away. We’re all paying the price for that and we will continue to do so in the new year.
The markets are expecting a blockbuster jobs report so oil might be impacted by how that comes out. If the report is strong, then it’s possible that oil could pull back on fears that the Federal Reserve will have to become even more aggressive. We saw earlier in the week that the Fed did the signal that they might be more aggressive but at the same time that aggression will signal strong oil demand so if we see a big break after the jobs report it is probably going to be a good buying opportunity for long term positions.
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