Oil prices were steady before a report that showed the Biden administration is now pleading with OPEC to raise oil production to save the global economic recovery. OK, a pleading may be a strong word, but make no mistake about it, the Biden administration is feeling the heat from rising gasoline prices. A statement made by National Security Advisor Jake Sullivan said that, “Higher gasoline costs if left unchecked, risk harming the ongoing global recovery. The price of crude oil has been higher than it was at the end of 2019, before the onset of the pandemic. While OPEC+ recently agreed to production increases, these increases will not fully offset previous production cuts that OPEC+ imposed during the pandemic until well into 2022.
At a critical moment in global recovery, this is simply not enough. The statement said that Biden has made it clear he wants Americans to have access to affordable and reliable energy, including at the pump. Although we are not a party to OPEC, the United States will always speak to international partners regarding issues of significance that affect our national economic and security affairs, in public and private. We are engaging with relevant OPEC+ members on the importance of competitive markets in setting prices. Competitive energy markets will ensure reliable and stable energy supplies, and OPEC+ must do more to support the recovery.
Oh sure, blame OPEC. Crude oil broke over a dollar when the news of the statement broke. Yet, it is very hypocritical to blame OPEC when it has been the Biden administration’s fault that we are more dependent on OPEC oil.
Oil prices dipped harder on the news but is a little bit choppy because we don’t know that a statement by the White House is going to add to oil supply. The White House does not have a lot of influence over OPEC, and OPEC will probably acknowledge the statement in some way but whether or not it will raise production remains to be seen. By the accusatory tone of the Biden administration, it is kind of funny because this administration has done everything it can to reduce U.S. oil production. The U.S. has become more dependent on OPEC for oil and gas and that’s becoming more apparent. Pressure is rising on the Biden administration because of rising gasoline prices and because of that, it has to look like it is doing something. The infrastructure bill is talking about more taxes on driving miles and that’s going to further add to the burden of the U.S. taxpayer and also hurt people that are influenced by gasoline prices.
The crude oil market will get hard data from the Energy Information Administration today, and based on the API report it looks like it will be muted. The API reported that crude supply fell by 816,000 barrels. Supply in Cushing, OK, fell by 413,000. It showed that gasoline supply fell by 1.114 million barrels. Distillates fell by 673,000 barrels.
The market will look at production and exports in this Energy Information Administration report. The plunge in U.S. oil exports has been more of a concern for the price of WTI. At the same time U.S. energy production has been stalling. We want to see if there’s any improvement. The bottom line is overall demand in this report should be exceedingly strong. It should still suggest a tight supply situation and is probably another reason why the Biden administration is right to call on OPEC to raise production to meet the demand. That is of course unless the demand gives up due to the COVID shutdown.
Goldman Sachs issued a report that lowered its demand expectations because of the COVID outbreak in China. In other parts of the world where the delta variant has gone through, it’s been short-lived and had little impact on demand in Europe. Germany, for example, and in the UK, we’re seeing demand for oil bounce right back.
Overall, the outlook for the oil big picture is still very bullish. We do not know if OPEC will respond to calls by the Biden administration to raise output. Unless COVID shuts down the global economy, we’re still going to be very undersupplied into the end of this year.
Natural gas is still strong. Buy breaks as we are heading towards a major undersupplied situation. Yet, tropical storm Fred could risk a cut to energy demand. AccuWeather reports that the sixth-named storm of the 2021 Atlantic hurricane season developed on Tuesday evening, breaking the basin’s month-long lull. Tropical Storm Fred was named as it lingered just south of Puerto Rico at 11 p.m., local time, Tuesday. AccuWeather meteorologists had been tracking the disturbance that became Fred since last week before it was even designated Potential Tropical Cyclone Six by the National Hurricane Center (NHC).
Fred will track through the northern Caribbean before eyeing the United States as early as this weekend. Floridians are being urged to remain vigilant as the AccuWeather Eye Path® will bring the system close to the Sunshine State with the potential for heavy rainfall, gusty winds, severe weather, and dangerous seas.