Energy Report: Drone Blown

Oil prices are back on the rise as the market realizes that the fundamentals of the oil market are signaling tight markets and higher prices. The Monday oil dip came as speculators piled into the market on reports of the Houthi rebel drone attack on Saudi Arabia that failed to do any damage and exited by the close. Yet while the run in Brent oil may have been premature, it probably just coming attractions of more bullish price moves in the days ahead.

We have been warning for months that the dramatic reversal of investment in oil and gas would drain inventories and leave the market undersupplied and it is becoming more apparent to the trade. Now with U.S. inventories getting ready to show the impact of the Texas power outages, we may start to see oil supplies fall below the five-year average at a time when we are seeing U.S. demand pick up. The question is will it show up in the oil numbers this week or next week. Platts reported that we saw refinery run losses of 70 million barrels with oil production of 20 to 25 million barrels. Already supplies of both gasoline and diesel are below the average range for this time of year and that is going to get worse. U.S. oil production is going to struggle to come back as investors do not want to make investments in shale only to have the Biden administration lay down the hammer. OPEC, which once feared the U.S. shale producer, is no longer fearful as they declared victory by rolling over their production cut.

white and green gas pump

Image Source: Unsplash

This means business in the U.S. and consumers better get ready for a summer of pain at the gas pump. Reduced stimulus checks will go into the gas tanks and the money will be going out to more foreign oil producers as U.S. shale recovery will be slow. I do not think Joe Biden is aware of the negative impact that his energy policies are going to have on poor Americans. He refuses to stand up to OPEC, but at least India is.

Reuters reported that "India has asked state refiners to speed up the diversification of oil imports to gradually cut their dependence on the Middle East after OPEC+ decided last week to largely continue production cuts in April, two sources said. India, the world’s third-biggest oil importer and consumer, imports about 84% of its overall crude needs with over 60% of that coming from Middle Eastern countries, which are typically cheaper than those from the West. Most of the OPEC+ producers, led by the world’s top exporter Saudi Arabia, last week decided to extend most output curbs into April. India, hit hard by the soaring oil prices, has urged producers to ease output cuts and help the global economic recovery. In response, the Saudi energy minister told India to dip into strategic reserves filled with cheaper oil bought last year.

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