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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 oil market got hammered on Sunday night but rebounded on confusion as to whether China will lift some of its covid-19 restrictions or not. When it comes to global demand, the one missing element has been China. China’s zero covid policy has no doubt played a part in some of the weaknesses in global demand. This in hindsight is probably a good thing because had China had their economy open this whole time, we probably wouldn’t have been able to meet global demand. China President Xi Jinping is now planning a trip to Saudi Arabia scheduled for the second week of December. Biden of course has shunned Saudi Arabia in one of his many foreign policies bungles and Saudi Arabia is looking for other partners in the world.

Friday, the markets soared as it appeared that China was lifting some of its restrictions on incoming travelers to the country. Bloomberg reported last week that, “China was working on a plan to end a system that banned individual flights for bringing in passengers infected with the COVID-19 virus. Yet over the weekend, the markets became frazzled after Reuters reported that, “China will persevere with its “dynamic-clearing” approach to COVID-19 cases as soon as they emerge, health officials said on Saturday, adding that measures must be implemented more precisely and meet the needs of vulnerable people.

Yet if you look at Chinese oil imports, they suggest a different story. Chinese oil imports surged. For the first time since my posting, there was a year-over-year increase of 43.14 million tons.  There must be a reason why China all of a sudden is importing a lot of oil. I guess that China is getting ready for some type of reopening of the economy or at least getting ready for winter. Whichever it is it doesn’t really matter. The thing is that global supplies of oil are still exceedingly tight with no room for error and any increased demand from China is going to make that situation even tighter. This is happening even as China’s exports fell last month on a slowing global economy and supply chain issues.Part of the reason the world finds itself in such a dangerous position is because of the green energy movement. The COP 27 world leaders climate summit is one of the reasons why the world is in such a  precarious situation. The green energy movement makes the world vulnerable by promoting underinvestment in fossil fuels and climate alarmism. This global conference is led by a group of global elites and has put the world in the most dangerous situation. This summit will be held in Egypt and we now see the real reason for this climate conference. It isn’t about saving the planet, it’s about the redistribution of wealth from wealthy countries to poorer countries. At this meeting, poor countries are calling for climate compensation. They want the rich countries to give them money for their past polluting ways.

What we see is a movement to global socialism. Socialism always creates a scarcity of goods. The scarcity of goods leads to inflation, and the scarcity of goods hurts the poor and the middle class. They say they have to move to do this to save the planet but does anybody want to live on a planet where the global elites get rich and the poor are left out in the cold to freeze?

The summit leader policies have also led to global instability. Russia is using its energy dominance over Europe as a political weapon and then because of these policies countries have gone back to burning dirty and dirtier fuel. Zero Hedge reported that, “The European Union has been quietly celebrating a consistent decline in gas and electricity consumption this year amid record-breaking prices, a cutoff of much of the Russian gas supply, and a liquidity crisis in the energy market. Yet the cause for celebration is dubious: businesses are not just curbing their energy use and continuing on a business-as-usual basis. They are shutting down factories, downsizing, or relocating. Europe may well be on the way to deindustrialization. That the European Union is heading for a recession is now quite clear to anyone watching the indicators. The latest eurozone manufacturing activity-fell to the lowest since May 2020. Turn to the United States and we’re hearing about warnings of shortages of diesel fuel. It looks like it’s been outright panic buying in some markets and other dealers are warning people to be prepared for shortages this winter.

Biden has tried to cool off prices for political purposes by releasing oil from the Strategic Petroleum Reserve which has discouraged investment. Now Biden is threatening windfall profit taxes on energy companies and talking tough against oil companies. It’s only going to restrict supplies more. Even with the Strategic Petroleum Reserve releases we should see crude oil supplies fall by about 1,000,000 barrels. Gasoline inventories should also fall by three million barrels and distillate in inventory should fall by 2,000,000 barrels. We expect refinery runs to stay steady this week.

Natural gas prices exploded on Sunday night. The weather forecast turned very cold for the end of November. Obviously the volatility in this market is high because the difference between prices being extremely high or extremely cheap is going to depend on the weather. While we’ve seen some significant gains in inventories in recent weeks, supplies are still relatively tight. If we have a cold winter, we should see natural gas prices come close to all-time highs this winter.

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Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network


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