While the stock market sold off on fear over reality, oil stood strong with only modest risk-off selling. Perhaps it was the fact that the bulls have abandoned the long side, with a bullish position near a 14-year low! Perhaps they are running out of people to sell, Mortimer.
Or maybe it was their realization that despite the expected increase in oil production from OPEC, it’s not going to be enough barrels to significantly move the needle on global inventories. In fact, the market is starting to look so tight as you look out further than even the International Energy Agency, who I’ve criticized for decades because they became the green energy agency, is calling for increasing the production of fossil fuels.
Reuters reported that, “Fatih Birol, the director of the Paris-based International Energy Agency, said on Monday there is a need for investment in oil and gas fields to support global energy security. The comment puts the energy watchdog for industrialized nations more in line with President Donald Trump’s pro-drilling agenda, after it came under pressure from fossil fuel advocates years ago for proposing an end to new oil and gas projects.”
Either that or the IEA got hit with a dose of reality after their disastrous calls to end all investment in fossil fuels.
As the stock market freaked out on recession fears, the oil market was suggesting that a recession is not in the cards. In fact, the fears were so evident that they saw an accumulation of a record amount of put option positions and that suggests that when you see something like that, the crowd is almost always wrong. Tariff concerns may be alleviated because US Energy Secretary Chris Wright suggested that oil and gas may be exempted from tariffs. Bloomberg is suggesting that concern about President Donald Trump’s threats to impose tariffs on US imports of Canadian oil is waning as the duties’ start date keeps getting pushed back, strengthening local crude prices.
Secretary Wright also suggested that he would cancel all mandated oil sales from the Strategic Petroleum Reserve, which means that they are serious about refilling the reserve and should be a put for the price of oil and make it unlikely that we will fall below $60.00 in the short term.
And because of Biden’s manipulation of the market with releases from the strategic petroleum reserve, they disrupted the market in such a way that oil and gas producers according to Reuters are unlikely to increase spending this year and output increases will primarily come from improved efficiencies rather than new drilling citing Baker Hughes Chief Executive Lorenzo Simonelli.
On top of that, the way the market held up as we started heading into the end of shoulder season should suggest that we should see some strong markets over the next few weeks. Just remember as we head into the Easter holiday, we traditionally get a rally, and the market looks primed. If the shorts decide to throw in the towel, we could see a pretty big spike and maybe go back to the mid-'70s.
Traders will also get a look at the Energy Information Administration's “Short Term Energy Outlook” today. It’s going to be interesting to see if they call for more investment in fossil fuels. It’ll also be interesting to see if they have any take on the potential tariffs that could ensue the surrounding energy.
Fears of a government shutdown have also eased. Reuters reported that the Republican-controlled U.S. House of Representatives set up a Tuesday vote on legislation that would keep the government funded and avert a partial shutdown, as Washington is rocked by President Donald Trump’s rapid moves to slash federal agencies. The House Rules Committee advanced the bill on Monday evening to the full chamber, clearing the way for what will likely be a close vote on Tuesday to extend government funding past midnight Friday, when it is due to expire.
Natural gas has calmed down, but to make no mistake about it the charts are still pointing out higher natural gas prices. This shift from the perpetual bear market seems to have turned as the outlook for demand for natural gas looks so much stronger down the curve. Increased liquefied natural gas exports as well as increased domestic demand should mean for producers that their long, bearish nightmare is over.
Obviously, weather is going to be key for natural gas as we get into summer; predictions of the hot summer after a cold winter are keeping the bears at Bay.