Oil prices are rising, and so are major bank’s price projections while OPEC production plummets and gasoline shortages pop up in Arizona as supplies of ethanol are short due to floods and a rash of refinery outages. This comes as the lights are still out in Venezuela and U.S. oil production more than likely won’t hit previously projected production levels. Now with recession fears all but going away after stronger than expected global manufacturing numbers, the bullish reality is setting in as oil blew through the 200-day moving average like a knife through butter.

Major banks are now catching up with our more bullish forecasts. The Wall Street Journal is reporting that “Banks raised their forecasts for the price of Brent Crude, the global oil benchmark, in 2019, as the market continues to be supported by production cuts led by the Organization of the Petroleum Exporting Countries, as well as geopolitical risks to supply.”

“Brent crude is expected to average just over $68 a barrel this year, according to a poll of 12 investment banks conducted by the Wall Street Journal in March, compared with a forecast of $67 a barrel in February. West Texas Intermediate, the U.S. oil standard, is expected to average nearly $60 a barrel, in line with the previous estimate, the poll showed. The banks predicted prices will continue to rise through April-June this year, before falling back towards the end of 2019.”

I still think the consensus is on the low side as I think that many of the forecasts are overestimating shale output and are underestimating the impact from OPEC production cuts.

Reuters reported that “OPEC oil supply sank to a four-year low in March, a Reuters survey found, as top exporter Saudi Arabia over-delivered on the group’s supply cutting pact while Venezuelan output fell further due to sanctions and power outages.” OPEC pumped 30.40 million barrels per day (bpd)last month, the survey showed on Monday, down 280,000 bpd from February and the lowest OPEC total since 2015 according to Reuters. “The survey suggests that Saudi Arabia and its Gulf allies are pressing ahead with even larger supply cuts than called for by OPEC’s latest deal, shrugging off pressure from U.S. President Donald Trump to increase supply. On Thursday, President Trump again called for OPEC to pump more oil to lower prices.”

We agree that OPEC will not respond to the tweet, but now that Brent crude is getting closer to $70 a barrel, we think there is a chance that the Cartel may relent a bit and raise output at their June meeting. Of course, Brent crude might be over $80 a barrel by then.

The Midwest floods are already having an impact on gasoline prices and are in part causing some gas pumps in Arizona to run dry. The reason is that because of the Midwest flooding and pipeline issues, the refineries cannot get enough ethanol to mix into their summer-blend gasoline that is now required in Arizona. Arizona Central is reporting that “Many Circle K stores around the Phoenix area still have no gasoline nearly two weeks after the company began having problems that it blamed on its supply chain. A spot check of 30 Circle K stations around Phoenix on Friday found about one in five with empty pumps, the same as a March 20 check found. Two others had only one grade of fuel available. The company reports 644 stations in its Arizona and Nevada division, all corporately owned. Circle K is experiencing fuel outages across Arizona due to a 'perfect storm' of unforeseen circumstances including isolated issues with its pipeline, refinery supply source and ethanol distribution," spokeswoman Donna Humphrey said via email more than a week ago.”

The Motley Fool reported “that a number of ethanol production facilities have idled operations after nearby rail lines became submerged. The idling could have national consequences, as Nebraska and Iowa alone account for 40% of the country's total production. That all but ensures shareholders of ethanol producers such as Archer Daniels Midland (NYSE: ADM), Valero Energy (NYSE: VLO), and Green Plains (NASDAQ: GPRE) will need to prepare for an impact on first-quarter -- and perhaps full-year -- 2019 earnings results.”

In other words, it could soon impact you. This comes at a time when the U.S. Ethanol industry had been breaking records. According to Ethanol Magazine, “data released by the UDSA’s Foreign Agricultural Service on March 27 shows the U.S. exported 127.91 million gallons of ethanol and 806,615 tons of distiller’s grains during the first month of 2019. January ethanol exports of 127.91 million gallons were up significantly when compared to exports of 88.31 million gallons reported for the same month of 2018. Top destinations for U.S. ethanol during the first month of the year include Brazil at 38.49 million gallons, India at nearly 20 million gallons, and Canada at 19.97 million gallons. January distillers’ grains exports of 806,615 tons were down when compared to the last report.”

The oils risks are high for products. We expect to see prices trend higher over the next two months. While some diesel demand may be less than expected by farmers who lost acreage in the floods, the surge in the global economy because of accommodative central banks across the globe will keep the risk to the upside. We continue to recommend, as we have for months, to make sure you are hedged. The American Petroleum Institute (API) releases its snapshot of oil supply this afternoon. The shutdown of the Houston shipping channel is making this hard to handicap but based on recent trends and strong demand we expect to see draws against the board. Unless of course, they count an extra tanker or two.

Natural Gas got a little pop on a drop-in production and increasing demand expectations. Maybe its last pop before what could be a nasty drop.