About The Author

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 Americans have just endured one of the longest streaks of double-digit increases for utility bills in decades, the Biden administration is talking about paying billions of dollars in reparations to poor countries for the impact of climate change. Do you imagine most Americans feel guilty when they pay their utility bills or fill up their gas tank and have to decide between food and fuel about the impact climate change is having in places like Africa, Indonesia, China. Due to this guilt, are we willing to send billions of our taxpayer dollars to the UN to dole out to their favorite poor nations. And just in case you don’t feel guilty enough, the Biden administration has proposed to hire 87,000 IRS agents and arm them just to make sure you cough up a little bit extra to save the planet.

Oil prices are feeling a little bit heavy after plunging to the lowest level in 2 months on China’s covid concerns and the potential for a recession. Reuters reported that, “China’s capital warned on Monday that it was facing its most severe test of the COVID-19 pandemic, shutting businesses and schools in hard-hit districts and tightening rules for entering the city as infections ticked higher in Beijing and nationally. China is fighting numerous COVID-19 flare-ups, from Zhengzhou in central Henan province to Chongqing in the southwest. It reported 26,824 new local cases Sunday, nearing the country’s daily infection peak in April.

On the flip side, demand for gasoline may actually surge after the recent dramatic price drop. AAA is predicting that more than 55 million Americans are expected to travel for Thanksgiving and that is 99% back to top covid levels. The point is that the oil demand destruction really isn’t as bad as people have anticipated.There are also reports of panic buying of Russian oil before sanctions and price caps go into effect. Reuters reports that, “European traders are rushing to fill tanks in the region with Russian diesel before an EU ban begins in February, as alternative sources remain limited. The European Union will ban Russian oil product imports, on which it relies heavily for its diesel, by Feb. 5. That will follow a ban on Russian crude taking effect in December.

Russian diesel loadings destined for the Amsterdam-Rotterdam-Antwerp (ARA) storage region rose to 215,000 bpd from Nov. 1 to Nov. 12, up by 126% from October, Pamela Munger, senior market analyst at energy analytics firm Vortexa, said. With few immediate cost-effective alternatives, diesel from Russia has made up 44% of Europe’s total imports of road fuel so far in November, compared with 39% in October, Refinitiv data shows. Although Europe’s reliance on Russian fuel has fallen from more than 50% before Moscow’s February invasion of Ukraine, Russia is still the continent’s largest diesel supplier.

Despite the concerns of slowing demand, we still believe that the market is very tight globally and there’s no room for error. While the China shutdowns could keep the market well supplied, a reopening in China means we will be undersupplied. Thanks to the Biden administration, the US SPR inventories are drastically low and there’s little spare production capacity around the globe. The price risks are still to the upside. Traditionally, after a November sell-off, we have a tendency to bottom and start working our way back up and then toward April we expect the same pattern to ensue.

Natural gas could get a boost on the potential for more cold in the coming weeks but EBW analytics is cautious. They say that the market continues to struggle to price natural gas efficiently, with November-to-date intraday trading ranges averaging 54.8¢.                Incessant rumors over the return of Freeport LNG have dominated trading of NYMEX futures over the past 7-10 days. Friday’s announcement pushes back the anticipated timeline for the first on-site LNG production to mid-December before gradually achieving 2.0 Bcf/d in January. Seasonal price risks, however, remain tilted in a bearish direction.

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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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