Oil prices, which were recovering on somewhat supportive data from the American Petroleum Institute (API), turned negative on reports that Russia is considering a neutrality model for Ukraine. Apparently, the idea is to create a demilitarized Ukraine like Austria with its own army that could be seen as a compromise and perhaps a way to end the war. Some people are speculating because Russia is taking such heavy losses in Ukraine that it’s looking for some type of an exit strategy from this war, but it remains to be seen if this is a serious effort or just another delaying tactic so they can regroup and continue to target innocent civilians. Whether Russia is serious or not, the market did react as stocks rallied and oil gave up over $2.00 of its morning gains.
Russia’s foreign minister Lavrov said peace negotiations with Ukraine aren’t easy, but there are hopes for a compromise. The idea of creating a demilitarized Ukraine like Austria and Sweden might be an off-ramp for Russia, but who can trust the Russians. At the same time, economic sanctions are crushing the Russian economy, and they might be getting desperate.
Distillates rose by 888,000 barrels but are still well below comfortable levels. The API reported a hefty strategic petroleum reserve, with a bloated 3.754-million-barrel increase in crude supply, offsetting a substantial 3.794 drop in gasoline. The drop in gasoline supply is a sign that we are starting the slow switch to the summer blends, which means prices will stay solid despite the drop in crude prices.
The International Energy Agency also came out with their report and reduced their forecast for growth in oil demand by 950,000 barrels a day to 2.1 million barrels a day. So they’re reducing the world oil demand forecast for the second quarter through the fourth quarter of 2022 by 1.3 million barrels a day.Of course, this is the same organization that lost 200 million barrels of oil, and their track record on predicting demand has been, to put it nicely, horrible. Yeah, that report did play into some of the weakness, but it was really the story about Russia that put downward pressure on prices.
Democrats in Congress are now trying to blame oil companies for all their woes in their plummeting poll numbers for the increase in the price of oil. Senators are now proposing what I call the Windfall Help Putin Tax. Senators Sheldon Whitehouse and Elizabeth Warren say they will create a new tax targeting oil companies, take the money, and give rebates to poor citizens who will have to pay high gasoline prices. So you pay $10.00 a gallon for gas, you’ll get a check in the mail! How nice and inefficient that will be, but the government keeps control. When all of your economic proposals are failing, it’s always a good idea to look in your playbook and pull out a failed policy from the 80s. You remember the one that basically destroyed the USA energy industry and made us more dependent on OPEC for oil, destroyed innovation, and led to record gasoline prices and recession.
A windfall profit tax on oil will only hurt the American people. A windfall profit tax will make U.S. energy more expensive and foreign energy cheaper. A windfall profit tax will reduce U.S. oil production and, at the same time, reduce the huge tax revenue that is generated by this industry for federal and state governments. It will add to the deficit and add to inflation. But what it really does is put more money into the hands of Vladimir Putin by putting a tax on U.S. oil and making it more expensive. Countries around the globe will be more tempted to buy dirty Russian oil because it will be hugely discounted from any oil that comes from the United States. Just because the United States stopped buying Russian oil, plenty of countries will continue to do so. Europe is still forced to because of insane energy policies that left them dependent on Russia for oil and gas. China is continuing to buy Russian oil. India is continuing to buy Russian oil. Middlemen are trying to buy Russian oil and disguise it and resell it because they can make huge profits because Russian oil is so cheap and toxic politically on the world stage. Taxing U.S. energy companies will only make Russian oil look more attractive.
Politico reports that House progressives are planning to call on President Joe Biden this week to use his executive power to declare climate change a national emergency and to ban fossil fuel drilling on public lands. A draft of the climate portion of the plan shared by a House Democratic office included the request for the national emergency declaration, along with requests for Biden to declare a ban on oil and gas drilling on federal lands, end domestic and international fossil fuel subsidies, and issue executive orders related to environmental justice and clean air and water.
So when people are dying in Ukraine and consumers are getting squeezed at the pump, what a perfect time for Democrats to declare a climate emergency.
Really, environmental justice? This war on fossil fuels has been a disaster for the poor and middle class with the injustices created by bad energy policies. Their energy policies have made the world less stable and have led to war.
House Democrats have inflated the planet’s risk from climate change to appease big green donors. Even the International Energy Agency admitted that they had to hype data to get people to act, and it makes you wonder who is really behind this green energy agenda? It’s time to go after big green.
Republicans are now doing it. Fox News reported that the head of the Republican Study Committee (RSC) has called on Treasury Secretary Janet Yellen to investigate whether Russia secretly funded U.S. green groups that advocate against domestic oil and gas production.
Rep. Jim Banks, R-Ind., sent a letter to Yellen Friday that cites a 2015 Washington Free Beacon report that suggested the California-based Sea Change Foundation may allegedly be a conduit for Russian oil interests in funneling money to groups like the League of Conservation Voters (LCV), the Natural Resources Defense Council (NRDC), the Sierra Club and the Center for American Progress. As I stated before, a bad energy policy emboldened Putin to move on Ukraine.
Putin understands those who controlled energy in Europe and tried to use it to his advantage. Europe foolishly and recklessly moved too quickly away from fossil fuels, leaving them vulnerable those decisions, of course, have led to carnage in Ukraine. We follow the money and unmask big green that is destroying the American poor and middle class.
Oil prices also were weighed down by China’s demand concerns. China has imposed more lockdowns over the past week than at any point in the pandemic as it battles the fast-spreading strain. There are restrictions on movement in the commercial hub of Shanghai, the manufacturing center of Shenzhen, Jilin province in the northeast, and Langfang City near Beijing. Bloomberg News reported that traffic congestion in Shanghai is more than a third lower than a year ago, highlighting the impact on oil demand as Chinese authorities stick with their COVID zero strategies to try and stem the omicron virus variant.
Yes, some are speculating that China could be overreacting to COVID-19 fears on purpose just to lower energy demand and try to get caught up on supply.
Relations with Saudi Arabia and the White House continue to get worse. The Wall Street Journal reported that Saudi Arabia is in active talks with Beijing to price some of its oil sales to China in yuan, people familiar with the matter said, a move that would dent the US dollar’s dominance of the global petroleum market and mark another shift by the world’s top crude exporter toward Asia. The talks with China over yuan-priced oil contracts have been off and on for six years but have accelerated this year as the Saudis have grown increasingly unhappy with decades-old U.S. security commitments to defend the kingdom, the people said.
The Saudis are angry over U.S.’ lack of support for their intervention in the Yemen civil war and over the Biden administration’s attempt to strike a deal with Iran over its nuclear program. Saudi officials have said they were shocked by the precipitous U.S. withdrawal from Afghanistan last year. This is happening because the Biden administration chose to make Saudi Arabia a pariah state, and now they are being forced into the hands of China, and that is going to take a long time. They were once a U.S. ally but now have been made with one that Biden calls “our most serious competitor”.
It is going to take a while to undo all the damage the Biden administration has done to the U.S. energy industry. What makes it worse is that they won’t acknowledge that they’ve done any damage and want to double down on that damage. They continue to make false accusations against U.S. energy companies and oil workers and somehow try to work with Venezuela and Iran. If you have to write a script on how to destroy an economy and cause inflation, the Biden administration is doing it in real-time.
Natural gas is getting a pre-spring rally. EBW analytics says that balmy temperatures spanning the lower 48 and an early end to the withdrawal season—potentially by next week—may help the front-month extend lower. Still, strong technical resistance has impeded the move lower over the past week and may allow for periodic relief rallies over the next 7-10 days. The next 30 days may provide an opening for bearish weather and excess supply to weigh on natural gas before planned LDC injections begin in earnest. However, a lofty storage deficit may limit the extent of downside potential.