The oil rally is taking a bit of a pause this morning as there is a perception that the market has gone up too fast and the fact that we saw builds in the American Petroleum Institute (API) supply report. We saw snap-back builds in crude oil to the tune of 4.127 million barrels. Gasoline supply thankfully increased by 3.555 million barrels and distillate by 2.483 million barrels.
Still, the overall fundamentals for oil and products are extremely bullish as supplies of almost everything energy has tight supplies around the globe. Demand for products and energy is rising as recent global lockdowns due to the Delta variant of the COVID-19 plague are being lifted.
News stories shared by Investor Village quotes headliners like “The US/European travel ban ends starting to have measurable effects” from Bloomberg and businesstravelnews.com that “Global/Air-Canada-Restarts-Nonstop-Delhi-Service” or that a second-Carnival-cruise-ship-begins-sailing-from-long-beach. NPR reports that “Japan-to-lift-all-coronavirus-emergency-steps-nationwide and in COVID Lockdown weary Australia that “Sydney-set-to-unveil-freedom-roadmap-as-more-covid-19-curbs-eased.”
Despite a report that the Biden administration is in consultations with OPEC, they continue to say that the cartel will not deviate from its plan to raise production only modestly. Reuters reported that OPEC+ is likely to stick to an existing deal to add 400,000 barrels per day (bpd) to its output for November when it meets next week, sources said, despite oil hitting a three-year high above $80 a barrel and pressure from consumers for more, and that means the Biden administration.
Treasury Secretary Janet Yellen yesterday testified that she believed that Biden’s policies have no impact on energy prices. I disagree. This is the most I’ve disagreed with Treasury Secretary Yellen since she was vice-chair to Ben Bernanke and wrote an opinion piece in the Wall Street Journal that quantitative easing would not raise the cost of commodities. She was wrong then and she’s wrong now.
The Biden administration has raised oil and gas and energy prices. They have imposed stricter regulations, imposed drilling moratoriums and canceled pipelines. They have signaled they want to replace fossil fuels and have caused investors to not invest in more fossil fuel supply and that raises prices.
We predicted that under President Joseph Biden energy prices will rise and supply will tighten and that’s exactly what happened. You can blame a whole bunch of issues of why you think that happened but underlying it all is Joe Biden’s energy policies. More regulations, anti-fossil fuel policy, and discouraging investment has caused a tightening of supply.
It is not just Biden’s policies today, but the policies he wants to implement in the future. Democrats are talking about imposing a carbon tax, a drilling tax, a fossil fuel tax and they say they’re doing this to go after polluters. The problem is that these taxes ultimately are going to be paid by the consumer.
Someone should clue in that fact to White House Press Secretary Jen Psaki who doesn’t seem to have a great understanding of how economics works. In yesterday’s press conference she was asked:
“...about what Republicans are pointing to in the analysis from the Joint Committee on Taxation. They say, according to—if I’ve read the chart correctly, more than 16 percent of taxpayers would see their taxes increase under the bill that’s approved by the House Ways and Means Committee. Will the President sign that bill if—as if— it is coming out of that committee? Or will he insist on the changes so that he will maintain his commitment that taxes won’t go up on people making $400,000 a year?"
Psaki:
"I have not looked at the document or the report that you have put out. The President—or that you have referenced, I should say—that the Republicans put out. The President’s commitment remains not raising taxes for anyone making less than $400,000 a year. There are some—and I’m not sure if this is the case in this report—who argue that, in the past, companies have passed on these costs to consumers. I’m not sure if that’s the argument being made in this report. We feel that that’s unfair and absurd, and the American people would not stand for that."
That was a fascinating exchange and I think shows the Biden administration’s overall view of how the global economy works. If the Biden administration believes that higher costs due to higher taxes cause companies not to pass on those costs to consumers, then they are living in a fantasy world that does not exist. Sort of like a lot of those green energy technologies they are hoping to rely on. They don’t exist.
EBW Analytics says,
‘’Natural gas extended its meteoric rise in its October contract final settlement on Tuesday. Price volatility continues to soar as wild swings near current levels exert little fundamental impact on natural gas demand or supply. The near-term outlook appears bearish for gas amid rising production, falling LNG feedgas demand, and a resolutely milder-than-normal October weather forecast.
"Our long-term, probability-weighted scenario analysis continues to suggest a fair value of $6.00-$6.50/MMBtu for natural gas. Over the next 30-45 days, however, any potential turn colder into the beginning of the heating season—as DTN suggests is increasingly possible at the end of October—could spark soaring winter risk premiums and carry natural gas well above this target. If a sustained cold does not transpire early in the winter, however, risk premiums may pull back into the end of the calendar year."