Oil prices are playing the waiting game as the market awaits the decision by OPEC plus Russia on how much supply they will add to the market and at the same time question whether or not Iranian barrels will ever come back to the market.
Behind the scenes, there was a little bit of drama as the Biden Administration yesterday ordered attacks on Iranian militias by the Iraqi Syria border. This attack, of course, could further delay the already much delayed Iranian nuclear agreement. Iran is refusing to allow inspectors at their nuclear facilities as they are being told that the agreement had expired. That, of course, is going to make it much harder for negotiators to come to a final resolution.
Yet all this drama overshadows the fact that global inventories are falling at a dramatic pace. Take a look, for example, at the private forecasters, Genscape, who, in their weekly reports showed another substantial 1.577-million-barrel drawdown in the Cushing OK delivery point.
This is the delivery point that a year ago they were afraid was going to overflow and now they are afraid that the draws in the tanks could put pushing Oklahoma below their minimum operating levels in just a few weeks. This comes at a time where U.S. oil production is stagnating shale, producers are not spending money, and investors are turning away from traditional fossil fuel investment.
John Kemp at Reuters points out that while U.S oil prices have climbed to the highest for roughly three years, the number of rigs drilling for oil is still less than half what it was the last time prices were at this level.
That means that the shale cavalry is not going to come to the rescue of the global market and alleviate a potential shortage in the coming months and years. It also means that the US is going to be more dependent on OPEC and Russia for its oil supplies in its daily needs.
Your gasoline prices are still going up; in fact we’re hitting the highest levels of the summer. AAA puts the price of regular unleaded at a national average of 3.099 a gallon. The reopening of the economy is helping drive gasoline prices, but also as we predicted, policies by the Biden administration are making the situation worse.
While the Biden administration tries to show empathy for rising gasoline prices by demanding that there be no gasoline tax to pay for his infrastructure plan, at the same time his policies surrounding pipeline drilling moratorium commitments to the Paris climate accord, people, all will result in higher fuel prices for Americans.
There was also going to be a big impact on Americans when it comes to their heating bills as the drilling moratorium is creating a very tight supply of natural gas. Now you add in the impact of a hot summer record exports of liquefied natural gas and you have a situation where this winter's heating bills are going to be substantially higher than they were a year ago.
The cost for electricity is also going to rise. I don’t think that anybody in the administration truly thought out what their rush to electronic vehicles would do to the US energy infrastructure, which is not going to be prepared to handle an influx of a lot of electric vehicles without a lot of investment.
Regarding US electric infrastructure, the Biden administration says they want to make the power grid more renewable but that also means less reliable. It also means that we’re going to see the cost for electricity rise and it is going to be a challenge to charge millions and millions of electric cars.
The best way really to trade energy right now is probably to buy brakes across the board as we expect another bullish drawdown in crude oil supplies this week and we expect to see the demand for the product soar.
We’re facing it in the environment where we’re going to see tighter supplies and higher demand unless there's some breakthrough with Iranian nuclear talks or unless there’s some type of other event, the odds are still very high that we’re going to see a significant move on oil prices to the upside we do have to acknowledge though that the 4th of July holiday sometimes gives us a short term peak, but it will in no way change the overall bullish fundamentals underlying this market.
This bull market has been built by years of underinvestment in the oil and gas sector; it’s being built by the reluctance to invest more money in the oil and gas sector because of the concerns about climate change. We’re going to start to see the real cost of the energy transition and it’s going to be coming out of your pocket.