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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

Oil prices are on edge, moving higher even as Russia has not invaded Ukraine yet and reports that OPEC oil production fails to hit agreed-upon targets.

Oil Price reported that, “In December, OPEC+ added 253,000 barrels daily to its combined production falling well short of its 400,000-bpd target. OPEC’s underproduction fuels speculation about the cartel’s ability to ramp up production. Morgan Stanley: global reports, “spare oil production capacity will shrink from 6.5 million bpd at the moment to just 2 million barrels daily by the middle of the year.”  This comes after The International Energy Agency (IEA) predicted that OPEC spare capacity could fall by half to just 2.6 million bpd in the second half of the year. Those fears are not welcome at a time when the Russian-Ukraine tensions are still running high.  The Biden administration and Nato are warning Russia of tough sanctions if they invade.

Yet sanctions on Iran are not having as much impact as some think. Bloomberg reports that, “Sales of Iranian crude oil and gas condensates more than doubled in the first half of the local calendar year that began in March 2021, the state-run Islamic Republic News Agency said.   

Oil inventories should fall in the U.S. even as the U.S. releases more barrels from the Strategic Petroleum Reserve (SPR). Look for a drop of 2 million barrels and look for gasoline supplies to rise by 1 million barrels and distillate down by 2 million barrels. Runs should be up 0.5.

This continuing draw in oil should keep the market supported. Risks are to the upside as demand is exceeding supply in kind. Consider this the coming attractions of the world we will live in if the environmental movement continues to get its way.

Fox Business reported that Chevron CEO Mike Wirth says the prospect of oil hitting $100 per barrel is not out of the realm of possibility in the coming months, pointing to recent markets trends and global uncertainty. Wirth appeared on FOX Business “The Claman Countdown” on Friday, where host Liz Claman noted, “Oil hit $90 a barrel earlier this week, and you look at Wall Street’s $100 a barrel forecast by this summer, that suddenly doesn’t look so lofty.” Fox Business reported that Claman asked Wirth what his price outlook is for the spring, to which he replied, “Could we see $100 oil? I think we could – we’re not far from it right now, and a lot of it depends on things that are very hard to predict that could happen around the world.”

The chief executive highlighted one particular factor, pointing out that “geopolitical concerns such as those related to Russia and Ukraine are once again creating jitters in commodity markets. “Claman then asked Wirth if his company had been contacted by the Biden administration in its campaign asking liquid natural gas producers to help out in the instance that Moscow cuts off the critical energy supply to Europe amid conflict. The CEO declined to comment on whether Chevron had been in discussions with the White House, but said the company is “always planning for contingencies.” In this strong market that we’ve seen, the incentives are for all producers to be producing as much as they can because the demand is clearly there,” Wirth said. The Biden administration has actively worked to hinder U.S. oil and gas production while blaming producers for the continued increases in gas prices Americans have been paying since Biden took office. Wirth says the pricing situation is simply a supply and demand issue.

Natural gas is soaring on cold weather and Russia Ukraine tensions. EBW Analytics reports last week’s bullish weather shift tightened the natural gas market by 85 Bcf, bolstering space heating demand and adding to supply freeze-offs. Over the weekend, intensifying cold over Texas—with the American weather model suggesting Midland may fall to just 3°F on Friday—have led to freeze-off fears with last February’s ice storm catastrophe in mind. As the shorts get squeezed and the March natural gas contract rose above $5.00/MMBtu on Sunday night, the market is signaling a growing risk of an acute dislocation developing later this week.

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