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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

The Biden administration does not want us to say that the economy is in a recession.  Well, if we can’t call it a recession, so we have to think of another name for this recent second-quarter drop in the gross domestic product. Instead of recession, we will call it a Bi-Session. The Biden administration continues to suggest that a recession by any other name doesn’t smell as nice But in fairness to Biden, it’s not a technical recession until all the data is in. There could be some upward revisions to GDP in the future that could mean that this negative growth could turn positive. Americans care about whether their lives are getting better. When you see gasoline prices go through the roof and the administration does not want to take any responsibility for it but then take credit for it when prices come back down, it’s no wonder Biden’s approval ratings are so low.

Joe Biden needs to own up to the economic slowdown, take responsibility, and assure us that they understand and feel our pain. Instead, we see rising food prices and empty shelves at grocery stores. We see smaller portions for higher prices at restaurants. They blame everybody from the farmers to the ranchers and even ordinary Americans for maybe eating too much. So for many Americans, if this isn’t a recession, they better hope that they never see one.

Biden has turned his back on pro-economic growth policies. They have specifically targeted growth in the US oil and gas sector. Call it a recession or Bi-Session, we know that it thwarted the momentum in oil prices early. The September crude futures were knocking on the door of a major breakout back above the psychologically important $100 a barrel area before pulling back after the GDP data came out.

Oil prices also sold off when OPEC started to signal that they might be open to pumping just a few more barrels at the next OPEC meeting but that by no means is a sure thing. At this point they’re talking about staying the course with their planned production increases but in deference to the global economy, they might promise but not deliver a few extra barrels. Why do I say they won’t deliver? Well let’s face it, they haven’t been able to hit their quota for some time and their supply side is very limited. 

Yet that didn’t stop the Biden administration from fawning all over the OPEC cartel. In an attempt to talk down oil prices, they gushed that they were very excited and seem to suggest that OPEC could give us an upwards production surprise at the meeting next week. The U.S. says that they are optimistic about a positive announcement from OPEC plus next week! OPEC in their comments did leave the door open to a production increase it is by no means guaranteed one. They did suggest that they might be able to go above their previously agreed upon 400,000 barrels increase and add a few extra barrels and that may happen, but the reality is it would just be token amount to try to appease Biden. While Biden cheers OPEC, keep in mind that their main coconspirator is Russia which is part of this oil mix.

Reuters reports that Russia and Saudi Arabia remain firmly committed to the goals of the OPEC+ agreement to preserve market stability and balance supply and demand in the global oil markets, the Russian government said in a statement on Friday. Russian Deputy Prime Minister Alexander Novak met Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman to discuss the two countries’ cooperation within the OPEC+ agreement, which sets quotas for oil production in a bid to balance global prices.

OPEC meeting is next week. The joint technical committee is on Tuesday. The joint ministerial monitoring committee is also on Wednesday followed by the OPEC meeting.

Despite yesterday’s disappointing market action, oil is mounting come back. It should make another attempt to take out the $100.00 barrel area. It was close but no cigar for September crude yesterday but getting help from the fact that the inflation rate in Europe overnight hit a record high. Consumer prices in Europe surged up 8.9% last month and that was above analyst estimates of 8.7%. The market is taking this initiative as a signal that the ECB will have to raise more aggressively to curtail inflation in the future. This is going to be a very difficult task for Europe. The energy crisis in Europe due to Russia’s dominance over European supply could cause the EU economy to slip into a recession.

We reported that JPMorgan predicted that the ECB would not be able to raise rates aggressively because of an impending recession. That report caused oil to sell off a few days ago. Yet the economic reality in the short term is that inflation pressures in Europe are out of control and will force the ECB to act. ECB President Christine Lagarde understands that inflation it’s a thief that sucks the blood out of the consumers, businesses, and the economic welfare. I believe her first inclination will be to cool inflation with an aggressive rate hike. If the economy slows, it can always reverse it but it’s a lot harder to reverse inflation if it continues to become more entrenched.

Biden tweeted, “Then we have the so-called Inflation Reduction Act. Let me be clear. “The Inflation Reduction Act of 2022 would be the most significant legislation in history to tackle the climate crisis and to improve our energy security.” That, along with begging OPEC for more oil and thwarting US energy production and bailing out failing green energy projects. No word on how this really is supposed to defeat inflation. Usually, government spending that has gone out of control is how you create inflation. It’s also very unlikely to reduce energy costs because alternative energy sources by their definition are less efficient and will always be more expensive.

If you really want to bring down inflation you should be encouraging US oil and gas production. That would be one of the quickest ways to relieve inflationary pressures not only today but for decades to come. You can still do your green energy transition but instead of taxing the heck out of oil companies and discouraging investment in that sector, they should be doing the opposite. It is very clear that Biden’s energy policies are one of the reasons the United States is in a Bi-Session.

Because of the green energy failures in Europe, Old King Coal is making a huge comeback. The International Energy Agency reported coal consumption in the EU is expected to rise by 7% in 2022 on top of last year’s 14% jump. Global coal consumption is forecast to rise by 0.7% in 2022 to 8 billion tonnes, assuming the Chinese economy recovers as expected in the second half of the year.

Libyan oil production we hardly knew you. Libya post a few days ago that their oil production after political tension had risen back to 1,000,000 barrels a day is now facing more challenges in the country and their energy sector. Mohamed Eljarh tweeted that, “Sources on the ground have confirmed to me that staff of oil services giant #Halliburton in western and eastern #Libya have been told to evacuate immediately, and ordered to leave their equipment/tools on sites. The exact reasons are not known. Similarly, German oil giant Wintershall is also suspending its operations and temporarily evacuating some staff due to a dispute with AGOCO oil company over accumulating debt. AGOCO recently got 600m LYD but failed to pay Wintershall. These are early reports and we will have to wait for confirmation of this. Yet because of the political situation in Libya, it wouldn’t be surprising. We will keep an eye on this.

For oil traders $100 a barrel is still the number to break above and if it does could bring in further aggressive buying. The failure near 100 could signal more consolidation. Products had a wild ride but fundamentally are still very bullish. Record-breaking exports of oil and products last week most likely won’t be repeated. We still think it’s a good time to be looking at options placed in the back end of the oil curve as we expect the back end over time will catch up to the front end.

Natural gas prices acted like they hit a peak after its record-breaking run. The Energy Information Administration injection report was actually bullish but didn’t have enough bullishness to keep the natural gas drive alive. Traders seem to use the report as an opportunity to take profits, hunker down and watched the weather and more than likely look for another opportunity to buy back in. Because at the end of the day US natural gas supplies are at dangerously low levels. Supply is 10.8% lower from a year ago and 12.5% below the year average.

EIA said that, “Working gas in storage was 2,416 Bcf as of Friday, July 22, 2022, according to EIA estimates. This represents a net increase of 15 Bcf from the previous week. Stocks were 293 Bcf less than last year at this time and 345 Bcf below the five-year average of 2,761 Bcf. At 2,416 Bcf, the total working gas is within the five-year historical range.

Friday is a great day to invest in yourself! Tune to the Fox Business Network because they are invested in you!

Call to get the wildly popular Phil Flynn Daily Trade Levels and open a trading account with me. Call 888-264-5665 or you can email Phil Flynn at pflynn@pricegroup.com.


Phil Flynn

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