Oil prices are on high alert after the Biden administration put troops on high alert in Eastern Europe. Oil traders are also on high alert, looking at global asset prices as the Fed meets to tell us about rising interest rates as many companies reporting earnings are not as upbeat about their future guidance.
The S&P 500 dipped into correction territory yesterday only to skyrocket to a higher close, chasing the beat-up Bitcoin higher. With the high-volume reversal on stocks and with the comeback on oil to close above the 10-day moving average, that should, at least for oil, put us into a serious buy the breaks mode.
The American Petroleum Institute (API) reports their inventory numbers, and we should see another drawdown on crude oil supplies. Builds and gasoline supplies have overshadowed recent drops in global crude supplies, at least in the U.S. Yet even with those builds and gasoline, the drops in crude oil supplies should be more of a concern and should give this market a very bullish trajectory.
For this week’s report, our expectations are that we will see a 3.0 million barrel drawdown in crude oil supplies with distillate inventories down by about 1.0 million barrels and gasoline supplies by 1.0 million barrels. We also expect to see refinery runs tipped up by 1.0.
The Biden administration, who is desperate for some type of win after a string of failures in their first year in office, may try to force through an Iranian nuclear deal. There are growing fears that the administration is willing to give away the house just to say they have a deal. That is even if they have to make a bad deal and give up major concessions to the hard-line Iranian government.
Reuters reports on that front that:
“A senior member of the U.S. team negotiating with Iran has left the role amid a report of differences of opinion on the way forward, as the urgency to salvage the 2015 Iran nuclear deal intensifies. On Monday, a State Department official confirmed that Richard Nephew, U.S. Deputy Special Envoy for Iran, is no longer on the negotiating team but was still a State Department employee. The official did not give a reason for the change but said personnel moves were ‘very common’ a year into an administration.”
Other reports today say that U.S. Secretary of State Anthony Blinken said returning to the Iranian nuclear deal is still the favorite option for the Biden administration. Even the Iranian nuclear deal proponents understand that the original agreement was flawed, and the fear is that a new deal will be even worse. I guess any deal might do.
Still, the main geopolitical factor is Russia versus Ukraine. Moscow, for their part, warned that more troops from the United States and Europe could make things worse, not better. The Biden administration is getting criticized for removing U.S. personnel from Ukraine. The Ukrainian people wonder what type of signal that sends. Other critics of Biden point out that this is the second embassy that he has abandoned and has just been in office for one year. This, they say, is a failure of leadership.
It is also about energy and war in Ukraine, which could have a cascading impact on Europe and the global economy. Due to underinvestment and green energy folly, Europe’s energy grid has left them extremely vulnerable. For example, Reuters reports that the central Asian nations of Kazakhstan, Uzbekistan, and Kyrgyzstan suffered electrical power outages in major cities after a major power line in Kazakhstan was disconnected. The grids of the three ex-Soviet republics are interconnected, and via Kazakhstan are linked to the Russian power grid, which they can use to cover unexpected shortages. But Kazakhstan’s North-South power line, which links densely populated southern Kazakhstan and its two neighbors to major power stations in northern Kazakhstan and the Russian network, was disconnected on Tuesday morning due to “emergency imbalances” in the Central Asian part of the grid, grid operator KEGOC said.
Gas prices continue to rise at the pump. Who said that Biden administration policies would not increase gas prices? Oh yea, those “fact-checkers.” We’re not just talking up about the cancellation of the Keystone XL pipeline or just the drilling moratoriums but the war on investors. The U.S. oil and gas industry has been threatened with new taxes and more regulations, along with using high-pressure tactics to get banks to stop lending money to fossil fuel companies. It has really taken its toll on the U.S. energy and gasoline production rebound.
AAA reports that despite typical low seasonal demand for gasoline, pump prices are clawing their way higher. The national average for a gallon of gas is $3.33, two cents more than a week ago. The culprit is the rising price for oil, which is now bobbing around $85 per barrel, nearly $20 more than in November. Last week, OPEC and U.S. energy officials said the COVID-19 omicron variant is no longer expected to slow the continued recovery of petroleum demand in 2022. Despite this, OPEC and its allies are maintaining their planned modest production increases and will not dramatically ramp up output. The result will be a continued tight supply of oil. Andrew Gross, AAA spokesperson said:
“Since dipping to $3.28 in the first week of January, the national average for a gallon of gas has slowly started to rise again. And as long as the price oil remains elevated, consumers will be feeling it at the pump.”
According to new data from the Energy Information Administration (EIA), total domestic gasoline stocks rose by 5.9 million bbl to 246.6 million bbl last week. Meanwhile, gasoline demand rose slightly from 7.91 million b/d to 8.22 million b/d. The slight increase still puts gas demand in the average range for the winter driving season. Typically, pump prices drop due to low gas demand and a rise in supply, but a steady increase in the price of crude oil has prevented this from happening. As oil prices continue to climb, pump prices will likely follow suit.
According to AAA, today’s national average of $3.33 is five cents more than a month ago and 94 cents more than a year ago.