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 soaring after Friday’s dismal performance after it became apparent that OPEC plus Russia it’s getting ready to make its move. It really shouldn’t be a surprise to anyone who’s been paying attention that OPEC plus Russia is set to announce a production cut of a million barrels a day or more as they have helped the Biden administration successfully drain our Strategic Petroleum Reserve SPR) and have given the cartel more control and sway over global energy prices. Not only are they going to perhaps reduce their quota by a million barrels a day Saudi Arabia is dropping hints that they could make even a larger voluntary production cut.
The Biden administration is going to have to make a big decision. Next month the SPR releases will end and with OPEC talking about a million barrels a day production cut we’re going to see a huge supply deficit as we head into winter. If President Biden does not continue the SPR releases that means we’re going to see a 2 million barrel a day deficit run the global marketplace. that means that the price of oil more than likely will head back above $100 a barrel and there will be little that the Biden administration at that point can do to stop that.
The Biden administration first started to release strategic oil from the reserve to send a message to OPEC that they got into an oil production war that he was bound to lose, and Americans are going to start paying the price.
From a technical viewpoint, crude oil continues to disappoint though we have seen intraday rallies above what would be considered a breakout we have failed to hold that price level throughout the day. it’s possible that today could be that day and we need to see oil prices close above 8270 to be considered to break out and if it does, I think we will see significant short covering and a very strong market as we head into October. Concerns about a rising dollar and a slowing economy have hurt oils prospects but at the end of the day when you look at the actual supply and demand numbers at this point we’re still gonna see a supply deficit going into the new year it could be as high as 2 million barrels a day if not higher.
The premature releases from US strategic petroleum reserve have left the country extremely vulnerable, especially at a time when the threat to global supply is higher than it’s been maybe ever. Not only do we have Russia threatening to cut off supplies to Europe we have reports of unmanned drones flying near oil installations in the North Sea.
Reuters reports that Norway’s military said on Monday it had posted soldiers to help guard major onshore oil and gas processing plants, part of a wider effort to boost security amid suspicion that sabotage caused leaks in the Nord Stream gas pipelines last week. Russia’s Nord Stream 1 and 2 pipelines burst on Sept. 26, draining gas into the Baltic Sea off the coast of Denmark and Sweden. Seismologists registered explosions in the area, and police in several countries have launched investigations.”
President Biden by training the reserve has made it more difficult for the US to respond to a real emergency president Biden used it to bring down gasoline prices and while you might argue it worked for a while it looks like gasoline prices are now reverting to a situation where they could move sharply higher, Things are getting so bad that even California governor Gavin Newsome is allowing refiners to use winter blends of gasoline early in an attempt to lower prices California has seen some stations charge as much as $8 a gallon. The national average for regular unleaded gasoline is 379.9 according to AAA the cost of diesel is a whopping $4.87 a gallon.
Natural gas prices are disappointing right now as the fundamentals in the shoulder season are weak even though we believe that this winter we’re gonna see a big price spike in the short term Goldilocks weather demand destruction from the storm, and Hurricane Ian is weighing on prices.
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