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
We’re caught in a trap; we can’t get out because we need the oil, baby. Why can’t they see what they’re doing to us when you can’t believe a word they sayin’?
OPEC Plus Russia has put the United States into a trap but oil prices are falling back on hopes that Iraq won’t drift into a civil war. Despite what Biden said would be the toughest sanctions on Russia ever, it’s clear that Russian oil revenues are soaring and their oil is being exported just fine. Still, oil prices are pulling back after yesterday giving support from a slew of bullish headlines on reports that political turmoil in Iraq may be settling down. Yesterday there were reports that the US embassy was evacuating Iraq during political violence. The Biden administration denied that. Reuters reported that the White House said on that unrest in Iraq after powerful Shi’ite Muslim cleric Moqtada al-Sadr quit politics was “disturbing” and called for “dialogue” to ease the country’s political problems. White House National Security Council spokesperson John Kirby told reporters that Washington sees no need to evacuate staff in its Iraqi embassy at this time.
Oil is pulling back on an AP report, “An influential Iraqi cleric called on his supporters to withdraw Tuesday from the capital’s government quarter, where they have traded heavy fire with security forces in a serious escalation of a month’s long political crisis gripping the nation. In a televised speech, Muqtada al-Sadr gave his supporters an hour to leave — and minutes later some could be seen abandoning their positions on live television. Iraq’s military announced an end to a curfew, further raising hopes that there might be a halt to the street violence. The unrest began Monday, when al-Sadr announced he would resign from politics and his supporters stormed the Green Zone, once the stronghold of the U.S. military that’s now home to Iraqi government offices and foreign embassies. At least 30 people have been killed, officials said. “This is not a revolution,” al-Sadr said in a televised address, which followed pleas for restraint and peace from several Iraqi officials and the United Nations.
One of the problems that the oil market is going to face is that OPEC is making it clear they may be on a path to cut production which is a direct slap in the face to the Biden administration. Countries like Saudi Arabia and Iran, who raised their selling prices for their crude so countries would be encouraged to drain U.S. energy supplies, have succeeded. The Strategic Petroleum Reserve is at its lowest level almost in history or at least since 1985 and is at the same time now reasserting its control over the global marketplace. Yesterday the Strategic Petroleum Reserve reported that supplies fell by 3.1 million barrels to 450 million barrels last week, 800,000 of that drop was sour crude. That is the crude that we need to make distillate.
The International Energy Agency seems to suggest that it is possible that they could engineer another relief from global reserves but as far as OPEC is concerned that’s only going to play into their hands. OPEC is tired of manipulation of oil prices and oil supplies by these governments. They have made it quite clear that they believe these releases from the reserve are short-sighted and they believe that the market price for oil is undervalued. OPEC has decided to do something about that and that means a potential cut in oil production.
Oil prices were also supported by violence in Libya which has reduced supplies. The Wall Street Journal reported that Clashes in Libya’s capital killed more than two dozen people over the weekend, the deadliest fighting the war-torn country has experienced in more than two years as rival political factions vie for control of the oil-rich nation. According to Tripoli’s health ministry, 32 people were killed and 159 were injured. Firing by armed groups damaged several government and residential buildings. The clashes, which abated by Sunday morning, were between armed groups loyal to Prime Minister Abdul Hamid Dbeibah in the western capital of Tripoli and militias backing a rival administration in the east trying to take the capital.
Oil prices too must worry about the Atlantic which seems to have storms popping up all over the place. The key thing with the storms is that the energy complex has no room for error. Refining capacity is already way too tight and supplies are below average for this time of year so any storm that disrupts supply could have a direct impact on price.
The FOX Forecast Center is monitoring several tropical disturbances in the Atlantic basin for possible development over the next several days. As of Tuesday morning, the NHC still says the tropical disturbance has a 50% chance of development over the next two days and an 80% chance of developing in, “Just east of the Lesser Antilles is a cluster of thunderstorms becoming a little bit more organized under that area of low pressure,” FOX Weather meteorologist Michael Estime said. “And that possible development area has increased over the next five days.” Forecasters will undoubtedly keep a close eye on this area of showers and storms. “Up to 70% chances that we will see a tropical system of some sort, most likely that would be a tropical depression, which could be named by mid- to late-week,” Estime said. “That could affect our friends and family in the Lesser Antilles and over toward Puerto Rico.” There are two other areas in the Atlantic Ocean that forecasters will keep a close eye on, a tropical system over the next five days. That is unchanged from Monday. Make sure you download the Fox Weather ap to keep up with the latest storm developments.
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