Oil prices, like the rest of the global markets, are shaking off the Italian “no" vote on constitutional reforms and Italian Premier Matteo Renzi announced resignation and instead are focusing on growth and OPEC production cuts. After opening lower the global markets came roaring back as it might not be all bad that Italy is seeking change. Oil topped $55.00 for the first time in 16 months. The resurgence in oil comes as OPEC and non-OPEC nations meet again this coming weekend to hammer out the last 600,000 barrels of the non-OPEC producer’s contribution to the cuts. The cuts have already reached its purpose, driving the price of oil up 19% which should make it easier to join in and adhere to the production cuts. Compliance should be high by OPEC standards because there will be unprecedented monitoring of output by OPEC members and independent sources. Beside they only must be on their best behavior for a few months to get the market into a daily supply deficit.
On Friday oil rallied not only on OPEC production cuts and rising demand expectations but also on news that the US Senate passed the Iran Sanctions Extension Act (H.R. 6269) by a vote of 99-0 on 1 December, sending the measure to President Obama’s desk. While Obama has not indicated he will sign it as he has suspending sanctions that were to expire at the end of the year. If he signs it will give incoming President Trump a lot of leeway in resuming sanctions on Iran if he chooses to do so. Trump is a big critic of the Iran deal and if sanctions are in[posed oil prices will rally.
Oil prices are also getting support as the Obama Administration caves into protestors from the Standing Rock Sioux Tribe and uses the Army Core of Engineers to block the Dakota Access Pipeline Project. The 1,172-mile, 30-inch diameter pipeline is trying to connect the expanding Bakken and Three Forks production areas in North Dakota to Patoka, Illinois. The pipeline goal is to get America produced shale oil to refining markets in a more direct, cost-effective, and environmentally safe manner. Instead oil will move by rail, where we have had some terrible accidents, and by truck, instead of the safest way to move oil and that is by pipeline. The shale oil is reducing our dependence on foreign oil and will help keep our gasoline and distillate prices low as oil starts to increase in price.
The New York Times wrote that the Department of the Army announced that it would not allow the pipeline to be drilled under a dammed section of the Missouri River. The Army said it would look for alternative routes for the $3.7 billion Dakota Access pipeline. Construction of the route, a half-mile from the Standing Rock Sioux reservation, has become a global flash point for environmental and indigenous activism. And of course, that pipeline activism may cause higher prices and with a lot of opposition to oil and natural gas pipelines, could lead to shortages down the road. In the meantime there is upside price risk due to these protests and many of the protestors are the hire a mob variety. Their sincerity is in question but heir desire for a free lunch is not.
Natural gas prices are higher even as the weather forecasts are mixed. Andrew Weissman of EBW AnalyticsGroup says that as of Sunday night, weather signals for December are mixed. Over the weekend, the 6-10 and 11-15 forecasts continued to shift significantly colder. But modeling runs suggest the potential for warmer weather by day 16. Natural gas may probe higher on Monday but we expect prices to remain rangebound until forecasts for late December clarify.
The global market for gas is heating up just as the US is becoming a net exporter for the first time in history. Reuters is reporting that India is giving priority to moving toward a natural gas-based economy and efforts must be made to raise local production of the fuel while also creating infrastructure to import it, Prime Minister Narendra Modi told an energy conference on Monday. "Natural gas is the next-generation fossil fuel, cheaper and less polluting," Modi said in an address at India's flagship energy event, Petrotech. "Efforts must be made to increase natural gas production while also creating import infrastructure to meet the growing domestic demand," Modi said.