Look out for oil and natural gas! Forget trading for the box where the lovely Carol Meryl stands! OPEC plus is going for the big deal of the day.
Saudi Arabia and Russia agreed to a 500,000 barrel a day production increase. Oil prices are soaring on the news because that was on the low end of what the market was expecting.
Oil is also getting support from the fact that we’re seeing little progress in the Iranian nuclear talks as reports say that the JCPOA talks are not expected to resume until at least next week and even then, there’s no definite meeting scheduled. It appears that the talks with the new hardline presidents are going nowhere and it is unlikely that we’re going to get a deal anytime soon.
So the market that was kind of thinking that OPEC might shock and awe us with a million barrel a day production increase has been disappointed. Those that expected to see a million barrels and more of oil coming from Iran are also going to be disappointed. So that is why we’re seeing oil prices start so strong today.
Also big news today on natural gas. We have a pipeline issue that could cause a significant spike in natural gas prices.
Just a year out from the price war, Saudi Arabia and Russia are now working very closely together to control the global oil markets. They found that working together works a heck of a lot better than it did when they were fighting and got into a production war. They also see a great opportunity to gain political power and make a lot of money and basically dominate the global oil market.
With the world retracting from fossil fuel investment, now there is some talk that the agreement between OPEC and Russia is going to be extended another year. So it looks like they are getting very chummy and they like working together.
There are some in the OPEC cartel that still think we might see a supply surplus in the second half of the year and that is another reason why OPEC plus is going to error on the side of tightening the market too much.
OPEC looks at the global economic stimulus in the way that demand is coming back and they think they can get away with higher prices. Remember, it was Russia just a year ago that was worried about high prices and how it might bring back U.S. shale producers and they have real concerns about market share.
Russia is not as worried about the U.S. shale producer anymore because they are willingly going along with this plan to raise production by the minimum amount that the market needs. We believe that the production increase is not going to be enough to meet demand.
The other thing we’re seeing today is more reports of surging demand despite concerns about the new COVID variant wave. We’re seeing some positive signs in India that demand is coming back. Bloomberg reported this morning that India’s gas demand is at 90% of what it was before the COVID-19 shut down.
Yesterday’s Energy Information Administration data was also very supportive. We saw another massive drawdown in U.S. crude oil supplies. in fact according to Javier Blas at Bloomberg, the six-week drawdown is the biggest string of drawdowns and the most loss of supply since the Energy Information Administration has been keeping records going back 40 years.
Months ago we predicted this drawdown in inventory. We saw it coming from a mile away due to the lack of investment in the energy industry, the negativity about how quickly demand would recover, and some of the predictions that COVID-19 would create permanent demand destruction to be patently wrong.
We’re starting to see that right now the market is also a cautionary tale for the global markets as we look towards this energy transition to greener fuels. We’re already seeing the impact of underinvestment in fossil fuels and it’s trying to show up in sharply higher prices. I believe we need a more balanced approach to the transition from fossil fuels and have to make a better plan when it comes to investment.
The demonization of pipelines for natural gas and other forms of fossil fuel is going to make it very difficult for us to have our cake and eat it. As far as green energy goes, we could be facing a big energy crisis. Global leaders need to look at the reality of energy and not the aspirations that they have for climate goals.
Natural gas prices might have cooled down on cooler weather forecasts, but now a pipeline issue has made natural gas explode. Andrew Weissmann of EBW analytics reports that the market outage is wreaking havoc. No new information as of the early morning report below.
Reduction inflows are even greater than 2 Bcf/d Columbia reported yesterday afternoon since it also reduces flows on Rover, EQT, and possibly other pipelines. Partially offset by reductions in LNG feedgas flows at Cove Point and Cameron LNG terminals, which take gas from Columbia.
"Even if the outage is short-lived, the impact will be several Bcf—enough to impact prices. If the outage is extended, could drive prices up significantly. According to Criterion Research, production in Appalachia is down by more than 4 Bcf/d—by far the lowest production in the past 12 months."