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 Biden Energy Policy is unraveling before our very eyes as Saudi Arabia decides to extend production cuts and there is nothing Biden can do about it. Oil prices are on track for its 6th week of gains and its longest winning streak of the year as Saudi Arabia and Russia vow to take more oil off the market as global supplies are drying up at a furious pace. Saudi Arabia announced not only will they extend the voluntary cut of one million barrels per day for another month to include September but warned that that cut could be extended or extended and deepened depending I guess, on their mood. Russia also piled on as Deputy Prime Minister of Russia Alexander Novak said Russia would cut their oil exports by an additional 300,000 barrels a day to ensure the market remains balanced. Which I assume means balanced in their direction.
The White House seemed to admit defeat when they failed to be able to buy back 6 million barrels oil for the Strategic Petroleum Reserve (SPR) that they drained in order to lower gas prices and improve their poll numbers. The problem they said was ‘market conditions’ which means it’s hard for them to find the oil at the right price, especially because OPEC is cutting. We saw the biggest one week drop in US crude oil inventories in the history of crude oil inventories. That massive 17-million-barrel weekly drop in commercial inventory would have made it look very foolish to take away that supply and put it away for a rainy day when it is already storming like crazy.
The White House released a statement that said, “The US will continue to work with producers and consumers to ensure the energy market promotes growth after Saudi Arabia’s decision to reduce oil production.” So, does that mean they will change course and stop demonizing the US oil and gas industry that Biden has accused of war profiteering and price gouging? Does it mean that he will stop trying to put the US oil and gas industry out of business and stop working to make it more expensive to produce oil and gas domestically. Does it mean that this administration is understanding the economic, geo-politcal and environmental benefits of the US oil industry that can bring to the US and the world?
It’s clear that Biden’s war on fossil fuels is backfiring as OPEC and its favorite co-conspirator Russia has regained dominance of the global oil market. Already output from the Organization of Petroleum Exporting Countries plunged by 900,000 barrels a day last month to an average of 27.79 million a day, according to a Bloomberg survey. It’s the biggest reduction since the group and its allies slashed supplies during the depths of the Covid pandemic in 2020. Today it is reported that OPEC+ JMMC recommends no change in oil output policy says delegate.
US production at the same time is stagnating at 12.2 million barrels a day which is at least 2-3 million barrels a day below what it should have been if it were not for the ill advised SPR oil release that distorted the market and discouraged investment but also because of the massive regulatory assault on the Industry from the Biden administration. We see the impact in the US oil and gas rig count that should be rising in this environment but has sadly been falling.
Not only has the Biden team openly discouraged investment into fossil fuels but their inflationary policies that have led to a downgrade of the US credit rating has made it more expensive. Now you have Democratic Senators like Elizbeth Warren and Bernie Sanders call for more lawsuits against US oil and gas for a supposed misinformation campaign on climate change. I am sure that Saudi Arabia and Russia will be happy if they pursue that. Today Biden will tout his push toward what he calls ‘smart investments’ in green energy as the ramifications of his discouragement of fossil fuel investment is being felt by the American people.
Such as gas prices that hit a new high for the year at $3.831 a gallon and diesel that hit $4.152 a gallon. Or the 30-year average mortgage rates in the US have hit 7.20%, a 23 year high. Or more regulations are going to make all your home appliances more expensive. Green energy is making things more expensive.
The hedges that we are recommending should stay in place. There is still significant upside price risk as global supplies tighten. European gas oil is soaring on shortage fears. Better hope for a warm winter.
Grain prices soared on another threat to global supply where supplies are already too tight. Reuters reported that, “A Russian warship was seriously damaged in an overnight Ukrainian naval drone attack on Russia’s Black Sea navy base at Novorossiysk, two sources said on Friday, after Russia said it had fended off the attack. The civilian port, which handles 2% of the world’s oil supply and also exports grain, temporarily halted all ship movement before resuming normal operations, according to the Caspian Pipeline Consortium which operates an oil terminal there.”
Natural gas snapped back after a bullish report that shook up the bearish supply side narrative. The EIA working gas in storage was 3,001 Bcf as of Friday, July 28, 2023, according to EIA estimates. This represents a net increase of 14 Bcf from the previous week. Stocks were 550 Bcf higher than last year at this time and 322 Bcf above the five-year average of 2,679 Bcf. At 3,001 Bcf, total working gas is within the five-year historical range.
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