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The Energy Report: Oil In Breakout Mode And Heading Towards $88

By Phil FlynnCommoditiesJan 14, 2022 09:36AM ET
The Energy Report: Oil In Breakout Mode And Heading Towards $88
By Phil Flynn   |  Jan 14, 2022 09:36AM ET
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It’s an 83 squeeze as oil tops $83.00 a barrel as global supplies are not keeping up with demand. Yet despite gasoline prices surging by almost 50% causing economic misery for the poor and middle class in America, the Biden administration is doubling down on its climate change-focused energy policy that is all over the board and if you follow the science, is bound to fail.

Energy Secretary Jenifer Granholm laughed when asked what the Biden administration could do to help increase US oil and gas production. The US is leading a sinking ship of an energy policy that is cheered by our foes within the OPEC cartel and out of it. Instead of focusing on oil and gas, the fuels that most of the country depend on and directly impacts daily life, they ignore that and instead start investing tax dollars in the Biden administration’s green dreams.

Secretary Granholm announced that the Energy Department would create Clean Energy Corps that they say will launch a hiring portal to attract 1,000 additional workers focused on climate change and clean energy. Yet it appears that Secretary Granholm is acting more like a green energy czar, which is former senator John Kerry’s job and seems to have no understanding about what her job is. She should be the secretary of all energy, not just energy sources that she likes. This is a disservice to every working and tax-paying American that is seeing their spending dollars eaten up by an energy policy that is based in ideology and not science and fact.

Maybe Granholm should be more concerned about U.S. falling oil reserves. Oil Price reports that, “Proven oil reserves in the United States slipped 19% over the course of 2020, from 44.2 billion barrels to 35.8 billion barrels," according to fresh data from the Energy Information Administration (EIA). The new EIA data shows that throughout 2020, just 3 billion barrels of proved crude oil reserves were discovered in the United States, with 1.2 billion barrels gained through adjustments, sales, and acquisitions. 8.8 billion barrels of proved reserves were lost due to net revisions, and 3.8 billion barrels were used up through the production of crude oil. The net change, according to the EIA, is 8.4 billion barrels, for a total loss of 19%. Previous EIA data shows that this loss of 8.4 billion barrels is the largest loss of proven reserves since at least 2010. In fact, there is only one other year in the last decade where proved reserves in the United States saw a loss: 2015. One of the main reasons behind the loss in proved reserves in 2020 was the smaller gain through extensions and discoveries. In 2020, just 3.002 billion barrels of crude oil were discovered—that’s less than half of what was discovered in 2018 or 2019.

As we have seen in Europe, the rush to get fossil fuels has left their economies and their national security at risk. Failures of wind and solar and draconian cuts in fossil fuel production have had negative consequences for them and added to inflation that is plaguing the globe. The Biden administration seems driven to repeat those mistakes.

Reports say that Biden will nominate Sarah Bloom Raskin, a former top treasury department official, to serve as the Federal Reserve’s top banking regulator post. While very well qualified, energy companies worry she will influence banks to not invest in fossil fuels just like czar John Kerry.  

Yet interestingly enough the oil demand right now would already be stronger if it were not for omicron and even with that tailwind, producers can’t keep up. Reuters reported that China’s annual crude oil imports slid 5.4% in 2021, dropping for the first time since 2001, as Beijing clamped down on the refining sector to curb excess domestic fuel production while refiners drew down massive inventories. China has been the global oil demand driver for the last decade, accounting for 44% of worldwide growth in oil imports since 2015, when Beijing started issuing import quotas to independent refiners.

Reuters reports that, “China will release crude oil from its national strategic stockpiles around the Lunar New Year holidays that start on Feb. 1 as part of a plan coordinated by the United States with other major consumers to reduce global prices." sources told Reuters. The sources, who have knowledge of talks between the world’s top two crude consumers, said China agreed in late 2021 to release an unspecified amount of oil depending on price levels. “China agreed to release a relatively bigger amount if oil is above $85 a barrel, and a smaller volume if oil stays near the $75 level,” said one source, without elaborating. The release of crude stocks by China will occur around the Lunar New Year, the sources said. China will be closed for the biggest annual holiday from Jan. 31 to Feb. 6. China’s National Food and Strategic Reserves Administration did not immediately respond to a request for comment.

Natural gas prices pulled back with the weather and some reports of easing supply in Europe. US LNG exports have come to the rescue of Europe but the problem is that tensions with Russia continue to run hot. No one is actually convinced that Putin will not invade the Ukraine so tensions will remain high.

Yes, as we expected, oil is in a breakout mode and seems to be headed towards my longer term target at $88.00 a barrel. As we rollover from the February to the March contract, we could see some volatility as February options expire today. I believe the market is waking up to the fact that we have a global shortfall of supplies. If you’re a hedger or a speculator we still like buying breaks in this market. We can also put on some strategies for later in the year and the back end of the curve might be an interest those with deep pockets. The back end of the curve is incorrectly predicting demand destruction that we don’t believe will happen so there may be some good opportunities but only for very well capitalized investors.

The Energy Report: Oil In Breakout Mode And Heading Towards $88

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The Energy Report: Oil In Breakout Mode And Heading Towards $88

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Comments (2)
William Wasser
William Wasser Jan 17, 2022 9:31PM ET
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Great anlysis!!
pawan pawan
pawan pawan Jan 14, 2022 12:57PM ET
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your true
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