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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

While we cannot downplay the risk to global oil markets because of the Russia Ukraine saga, the market realizes that at this point the oil from Russia is still flowing. The first round of sanctions from the Biden administration should not change that but at the same time, inventories are so tight the market can’t take a chance that those supplies could be disrupted soon. Ukraine is imposing a nationwide state of emergency and urged its citizens to leave Russia. Russian President Vladimir Putin said he was ready for “diplomatic solutions” to avoid a war with Ukraine, a country that Mr. Putin said was a Russian creation.

Reuters said that actions the Biden administration took on Tuesday and may take soon to punish Russia’s economy over its aggression in Ukraine, are not intended to hit global energy markets, a senior U.S. State Department official said. “The sanctions that are being imposed today, as well that could be imposed in the near future, are not targeting and will not target oil and gas flows,” said the official, who spoke to reporters on the condition of anonymity. “We would like the market to take note that there’s no need for increasing the price at the moment.” The state department source sounds a bit desperate and wants to try to deflate some of the war premium in energy. Yet can the Russian economy really be hurt if you don’t target their oil and gas industry?

Europe’s dependence on Russia as an energy supplier obviously has put them at a big disadvantage when it comes to trying to dissuade Russia from imposing its will on Ukraine. Former President Bill Clinton once famously said it’s the economy stupid. In Europe, it’s the energy stupid. You might say stupid shortsighted policies by Europe in this rush to the green energy transition have left the entire European continent more vulnerable to the whims of Russian President Vladimir Putin. Will the U.S. make the same mistakes?

The Wall Street Journal reported that, “sanctions announced Tuesday will target two Russian financial institutions and their subsidiaries: VEB, Russia’s state development corporation; and state-backed Promsvyazbank, which focuses on the country’s defense sector. In addition, the U.S. is imposing sanctions on Russia’s sovereign debt, which Mr. Biden said would cut Moscow’s government off from Western financing. The U.S. will also sanction five Russian elites with connections to the Kremlin and their family members.”

The cancellation of the Nord Stream 2 pipeline is a supportive long-term story and does send an important signal to Russia but at the same time, it does not impact supply or demand in the near term. U.S. Secretary of State Antony Blinken canceled his planned meeting with Russian Foreign Minister Sergey Lavrov which was planned for Thursday, reducing the odds of any diplomatic solution. We know that Europe is trying to avoid any sanctions on Russia’s energy sector because they are still so dependent on Russia for supply. Grain markets are also exploding because of concerns that Ukraine grain exports could be halted.

Trying to avoid economic catastrophe, the Biden administration continues to try to push through an Iran nuclear deal. Sources say they are nearing the “finish line.” President Biden is hopeful that a return of Iranian oil will offset any risk of supply loss from Russia.

Yet here in the United States at a time when we realize how critical oil and gas production is to the security of the globe, the Biden administration continues to double down on strategies that will put us in a similar situation in the future that Germany and the rest of Europe are in today. If the Biden administration doesn’t change course from their anti-fossil fuel agenda it will be viewed as one of the biggest strategic blunders in the United States history.

More good news for you as you head to the gas pump this morning. Bloomberg News reported that, “The U.S. Supreme Court rejected an appeal by Energy Transfer LP’s Dakota Access Pipeline, letting stand a ruling that required a new federal environmental analysis and left the pipeline vulnerable to being shut down.’” That should add a few more cents per gallon in the near future. This is already restricting oil output as some producers will not produce until they know that the Dakota Access pipeline future is secure.

Obviously, the most famous pipeline that the Biden administration shut down was the Keystone XL, yet that was only the beginning of what would come up become a full-out assault on the U.S. oil and gas industry. It really makes me wonder why the Biden administration is so focused on getting Iran to produce oil but at the same time restrict U.S. oil producers. Are Iranian oil workers more virtuous than U.S. oil workers? Are we going to send suitcases full of cash to Iran once again? The Biden administration and canceling the Keystone XL hurt America’s credibility as a reliable place to do business. Threats of taxing and regulations on the U.S. energy industry are only going to serve to have OPEC and Russia have more sway over our economy.

At the same time, the Biden administration can’t get OPEC to raise production. The group says they will not raise production because of the crisis between Russia and Ukraine. The Biden administration foolishly tried to use global strategic petroleum reserves to send OPEC plus Russia a message. They believe that the reserve should be used for what they say is price stability. That is not what the strategic petroleum reserve is for. If you try to stabilize the oil market with oil from the strategic petroleum reserve, you better build that reserve up a lot bigger because there’s not enough oil in the reserve to control the global oil markets. The best way to try to influence oil and gas prices is to allow the U.S. oil and gas industry to do what they do best and that is to produce oil and gas.

Tonight, traders will look to the API report as a gauge of supply and demand and it should be a very modest report. Expectations are that crude should show a modest draw of 1.076 million barrels. Expectations are for a modest draw of distillates of 546,000 barrels and they are also looking for a  modest 923,000 draw in gasoline. Like I said, a modest report.

Winter weather is whipping natural gas. The weather forecast flips from colder and then normal, then back to warmer, then normal. The Russian Ukraine crisis is giving us back our support and ultimately we’re looking for another pop higher but get ready for a rocky ride.

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