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 on the rise on China reopening optimism, concerns that sanctions on Russia hitting early next month while both OPEC and the International Energy Agency (IEA) see the global oil market IEA tightening in the second half of this year. Now, with the US-fed speakers sounding a bit less hawkish and the ECB led by Christine Lagarde sounding more hawkish, the bullish case for oil is looking very strong.
A Bloomberg article that is predicting a ‘peak’ in gasoline demand is a sure sign that a long-term bottom in gasoline price is in. The article stated, “Gasoline demand in the US has peaked, with a ‘surprise slowdown last year signaling that consumption is unlikely to ever again return to pre-Covid levels.” Of course, we did not hear the same thing about crude oil demand a few years ago only for the market to be on track to shatter demand records this year with demand expected to hit 103 million barrels a day. Then of course I can remind you of those who predicted “peak oil” production and that the world was only capable of producing about 80 million barrels of oil a day. What we have learned are these “peak” supply or demand predictions rarely if ever come true because of the over riding forces of the supply and demand on the world’s commodity that drives the economic engine of the global economy.
Bloomberg says that, “This long-awaited milestone shows that climate-friendly initiatives put into place more than a decade ago are finally taking the US across the threshold. American drivers are traveling more miles on less fuel than ever thanks to a generation of cars with more efficient engines as well as new electric vehicles. The government forecasts further decline in gasoline demand this year and next.”
If Bloomberg is going to be right, the only way this will happen is through the widespread acceptance of electric cars. Yet despite governments’ efforts to push us in that direction, due to restraints on the power grid and the buyer’s remorse on many with electric cars, it is unlikely to make an impact. The reality is that gasoline demand will start coming back from the covid shock and price shock this year and we will be on our way to new demand records in a few years.
We also heard that air travel would hit a peak. Yet demand for air travel is rising back. It was reported that according to the Transportation Security Administration (TSA), US air travel based on a 7-day average is 3.3% above the 2019 level pre covid levels. Bloomberg reported that, “Air travel in China has returned to January 2019 levels ahead of the important Lunar New Year holidays, according to aviation data provider Cirium. Airlines in China are scheduled to operate 99.8% of January 2019’s flights this month, Cirium said, although the recovery has been largely driven by domestic travel. Domestic seating is 9.5% higher than 2019 levels, Cirium said.
Diesel supply in the US is 20% below the five-year average. This should keep diesel well supported ahead of EU sanctions on Russian diesel.
Zerohedge reports that, “At long last, the Biden administration is admitting what experts have always known: reckless energy policies have disastrous consequences. This time, the Department of Energy quietly released a report highlighting the positive economic benefits of developing the Keystone XL pipeline from Canada, an energy project canceled by Biden in the hours following his inauguration.
Released without a formal announcement, the DOE’s report points out that the pipeline would have created between 16,149 and 59,000 jobs and would have had an economic benefit of between $3.4 and 9.6 billion. That’s no small impact. Yet with one stroke of his pen, Biden slashed the project and instead focused his efforts on costly “green energy” goals. As a result of his executive action, 11,000 pipeline workers were promptly laid off and told to “go to work to make solar panels” instead.
Yahoo News reports that, “Natural gas prices have plunged 50% in less than a month as an unusually warm winter hits both the US and Europe. Chesapeake Energy CEO Nick Dell’Osso wants to avoid a repeat of the 2014 shale bust by limiting supply growth. “We do think the industry should acknowledge that and may reduce growth in the near term,” Delouse said. Natural gas prices have plunged over the past month as an unusually warm winter hits both the US and Europe, denting demand for the heating source.
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