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
Do you ever think that China, OPEC, and Russia get tired of winning on energy policy. Global energy polices in Europe and President Biden in the United States continues to strengthen our adversaries while making the rest of us look pretty- stupid. This morning, Crown Prince Mohamed and Russian President Vladimir Putin took victory lap as they both “expressed satisfaction with the level of coloration OPEC Plus members.” Mr. Putin spoke to the Saudi Crown Prince, and I am sure there is no doubt they are snickering at the bumbling global energy policy by consuming nations. They are taking delight in the fact that the price cap on Russian oil and the political manipulation of oil market with massive strategic oil release will hurt investment giving the cartel and their new favorite buddy Vladimir Putin assured revenue and energy dominance for many decades to come.
While the price caps and sanctions on Russia’s oil and gas was supposed to severely impact Russia’s bottom line it looks like as I predicted is failing. Many countries will not abide by the price cap even countries like Japan that requested a waver. Now the flows of Russian oil have found many new markets and the rest of the world is buying back laundered Russian oil.
Reuters reported today for example that “Chinese state oil giants and major private refiners are sweeping up more Russian crude, supporting prices and forcing smaller independents to seek out cheap alternatives such as Iranian oil, according to trade sources and shipping data. The demand from China’s biggest buyers, which had shied away from Russian crude in the immediate aftermath of Western sanctions on Moscow over its invasion of Ukraine, shows growing confidence in the trade after state refiners PetroChina and Sinopec resumed imports in February.”
Reuters also reported that Russia maintained its position as China’s top oil supplier in March, Chinese government data showed on Friday, as buyers snapped up sanctioned ESPO and Urals shipments at steep discounts.
Arrivals from Russia totaled 9.61 million tonnes in March, or 2.26 million barrels per day (bpd), the highest on record.”
The Biden Administration for their part still seems to not understand the damage that they have done to the long-term energy security of the nation. The administration that makes most of its decisions based on malice and no longer-term strategic thinking makes you understand the importance of competent leadership.
Biden’s misuse of our strategic petroleum reserve is still causing problems in the market. Long term that decision to bolster his poll numbers ahead of an election ultimately hurt energy investment in the US and caused a lack of trust in investors around the world. President Biden s short term problem is how he is going to refill it.
Amos Hochstein whose current title is Special Presidential Coordinator for Global Infrastructure and Energy Security but should be Special Presidential Coordinator for Cleaning Up the messes that Energy Secretary Jennifer Granholm Makes” said that the US could begin to refill the strategic petroleum reserve this fall.
Now as we all remember and I’m sure that OPEC does, the Biden administration promised to refill the strategic reserve when the price of oil fell below $70. OPEC took that as an assurance but when oil prices fell below $70 a barrel during the height of the banking failure fears the Biden administration failed to act. Many also believe that that increased the animosity between Saudi Arabia and the United States. Animosity between President Biden in Saudi Arabia was high on the agenda and the Biden administration. That failure to fill the SPR was also a main reason why OPEC and Russia decided to cut production.
Of course, even now Mr. Hochstein admits the filling in the strategic petroleum reserve in the fall would depend on oil prices falling back down to below $70 a barrel. the problem is that the likelihood of oil prices falling below $70 a barrel is quite low unless we get into a deep recession in fact both the Energy Information Administration and the International Energy Agency are predicting a supply deficit by the fall. Maybe they failed to act because they must address environmental justice concerns and prioritize marginalized communities in their climate policies, whatever the heck that means.
The other problem with refilling the strategic reserve is because of the damage done to the salt domes. The strategic reserve first all oil delivered to the reserve in 1977 and because the Biden administration drew down oil inventories from that with old caverns at a record pace could have caused long term damage to those facilities.
Regarding the failure of the Russian price cap Mr. Hochstein is saying that the price-cap at $60 a barrel “is in the right place for now”. And why should it change it? It’s working great for Russia right now. Not only are they showing signs of joining OPEC production cut by reports that they’ve already reduced their output by 500,000 barrels a day they’re going to see the revenue go up as oil prices start to surge later in the year.
Another price cap in Europe is being removed and that is the power price caps that were put on European electricity prices. French finance minister Bruno Le Marie is saying this morning that they will phase out power price caps and they must be done progressively he says that electricity prices have not normalized. Yet at the same time he says that they should be keeping the price caps around new two years but still he says there’s no reason to uphold the gas price caps beyond this as electricity prices have declined.
The oil market action yesterday was still not pretty because the market is starting to fear the possibility that the Fed is going to overreact to inflation data and ignore the data that to suggests that the economy is slowing enough, and inflation should fall as well.
In the short term the markets are fearful that the fact that we’re seeing significant slowing in some parts of the economy.
We saw a huge drop in the Philly Fed yesterday and Existing-home sales falling 2.4% in March to a seasonally adjusted annual rate of 4.44 million. Sales declined 22.0% from one year ago.
Sources I’m talking to him far as trucking and imports into the Port of Los Angeles are seeing drops in volumes. The market is fearful that the Federal Reserve t’s going to break more things than just Silicon Valley Bank.
An increase in jobless claims seems to suggest that a lot of Americans are coming back into the labor force as they are running out of Joe Biden’s free money. It’s free for the people who get the money of course everybody else is paying for that “free money” every time they go to the grocery store.
Today oil prices are playing in the OPEC gap the big question is will they fill it or will the market just go straight up. Oil prices dipped below the 10-day moving average a few days ago and that gives the bears a chance to fill that gap. other traders are seen support in this area and if they fail to fill the gap and they come back and put in a big rally in close back above the 10 day moving average more than likely oil prices are going to soar either way whether we filled the gap or we don’t fill the gap our expectations are that we are in a bull market the breakout is still real and get ready to be hedged for the coming up move.
The recession will not come fast and hard enough to avoid a price squeeze.
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