Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Energy Report: Cool Down

By Phil FlynnCommoditiesMar 03, 2021 09:15AM ET
www.investing.com/analysis/energy-report-cool-down-200564679
Energy Report: Cool Down
By Phil Flynn   |  Mar 03, 2021 09:15AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
Red hot oil prices cooled down after reports that OPEC+ was prepared to “cool down the oil market with extra production.” The Bloomberg report caused oil prices to sell off into yesterday’s close after recovering from the China bubble talk sell-off. Yet should the market have been surprised by that announcement?
 

OPEC+ not only expected to raise output but probably leaked that statement. It came by increasing pressure from India that has been complaining that the cartel has been driving oil prices higher. That is a role that the U.S. used to take yet the U.S. President Joseph Biden's administration has been silent on OPEC+ because they want higher prices. They want higher prices because it makes green energy more economical. Pressure from the Biden Administration is causing talk and a major change in the outlook from the American Petroleum Institute (API) that will further increase oil and gasoline prices.

The Wall Street Journal reported that:

“The oil industry’s top lobbying group is preparing to endorse setting a price on carbon emissions in what would be the strongest signal, yet that oil and gas producers are ready to accept government efforts to confront climate change. The American Petroleum Institute, one of the most powerful trade associations in Washington, is poised to embrace putting a price on carbon emissions as a policy that would “lead to the most economic paths to achieve the ambitions of the Paris Agreement,” according to a draft statement reviewed by The Wall Street Journal. 

“API supports economy-wide carbon pricing as the primary government climate policy instrument to reduce CO2 emissions while helping keep energy affordable, instead of mandates or prescriptive regulatory action,” the draft statement says. API’s executive committee was slated to discuss the proposed statement this week. In a statement to the Journal, API’s senior vice president of communications, Megan Bolomen, said the group’s efforts “are focused on supporting a new U.S. contribution to the global Paris agreement.” 

If you cannot beat them, join them; but America better be ready to pay through the nose for oil and gas.

Reuters is reporting that the increase may not be a done deal even though I think it is. Reuters reports OPEC and allies, known as OPEC+, are considering rolling over oil production cuts from March into April instead of raising output because of fragile oil demand recovery due to persisting worries about the coronavirus, three OPEC+ sources told Reuters. OPEC+ ministers hold a full meeting on Thursday. The market had been widely expecting OPEC+ to ease production cuts, which have been the deepest ever, by around 0.5 million barrels per day (bpd) from April.

Oil also got support from massive product draws reported from API. The impact from the Texas power crisis that shut down refineries caused a 9.933-million-barrel drop in gasoline supply and an equally massive 9.053 million barrel drop in distillate supply. So even a 7.356 increase in crude supply looks small as refiners will have a lot of work to do to increase supply.

We think the worries about OPEC+ raising output is overblown. As we have said for months, the global oil market is headed into a long-term deficit situation. While an OPEC increase in production may cool prices in the short term, in the long term the dye has been cast. Not only will the market be undersupplied in the latter part of the year as demand comes back as more vaccines are available, but the lack of oil investment will lead us to a supply gap that could leave the oil market tight for at least a decade.

We are seeing woefully low investment in oil exploration and drilling in part because we are being told that we are headed towards peak demand. Yet the reality is that even under the best-case scenarios, oil demand will grow for the next 20 years. The problem is that the oil will not be there. Cheap oil anyway. That is why we have been warning for months to not take this market for granted. Hedgers hedge on breaks. Lately, we have been seeing market whipsaws on headlines. Dates should get more bullish as we go. If OPEC causes a price break, use it to add to long-term positions.

Iran reportedly is shopping around for oil buyers in a sign they may come to the table with the Biden administration. So, a win for Iran’s oil producers and a loss for U.S. producers.

It might be time to buy natural gas calls as well. Andrew Weissman of EBW Analytics says that the April natural gas contract has gained 6.8¢ early this week to recover one-third of last week’s losses. Technical support helped the rebound, but mid-March forecast uncertainty—with bearish numerical models pitted against analog patterns and a Madden Julian Oscillation suggestive of cold potential—may decide if the rally can continue beyond key resistance near $2.92/MMBtu.

The longer-term seasonal outlook for natural gas remains resolutely bullish, with recent production, LNG, and economic projections—and planned LDC injections picking up steam in the back half of April—pointing to significant gains. Still, the next 30-45 days may favor range-bound trading on declining seasonal demand, a post-winter production bump, and heightened demand outages delay the realization of a vastly undersupplied market.

Energy Report: Cool Down
 

Related Articles

Phil Flynn
The Energy Report: Gas Gimmicks By Phil Flynn - Jun 24, 2022 1

Energy prices are trying to find some support after getting beat up on recession fears in data from the American Petroleum Institute that failed to inspire people to come back in...

Energy Report: Cool Down

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Utshab Ghimire
Utshab Ghimire Mar 04, 2021 12:11AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
This analysis gives both perspectives under the shadow of muddy water.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email