Out Of Control!

President Trump has lost it, the election as well as common sense. The loss of life at the Capitol riots was inexcusable and the rule of law should be supreme. Yet while the markets reacted to the storming of the Capitol with a quick drop and a spike in the Vix fear index, the resilience of the market suggested that despite the unrest, there was unwavering confidence in the United States.

Even the oil market dipped sharply for a downward spike a bit as protestors stormed the capital but quickly recovered. It instead focused on the bullish fundamental outlook for oil as well as what a Biden administration will mean for oil prices. More regulations and a transition away from oil as president-elect Joe Biden calls it. It is a clear signal that we are entering an era of higher prices.

This comes as oil saw support from a supportive Energy Information Administration (EIA) that most notably reported that for the first time since 1986  that the US imported no oil from Saudi Arabia. This historic milestone shows not only the success of US shale oil producers but as the success of the kingdom in implemented the OPEC Plus production cuts. While the naysayers said OPEC Plus cuts after the production war would do little to get rid of global oversupply, instead missed another historic turning point in the global oil market story, a story that in 2020 was like no other. Add to that Saudi Arabia’s decision to make a voluntary production cut of 1 million barrels daily (bpd) over the next two months will apply to exports, Bloomberg reported, citing Minister of Energy Prince Abdulaziz bin Salman, “This is a commercial, not a political, option,” he said and reported by Aregaam. The minister added that the Kingdom has the capacity to withstand the reduction, and it will be similar to the output cut, which was implemented in June 2020 in cooperation with the UAE and Kuwait.

The drop in Saudi oil imports helped engineer an 8 million barrels drop in weekly crude oil supply. That cut supplies to just 9% above the five year average for this time of year.  We saw gasoline inventories increased by 4.5 million barrels last week and are at the five year average for this time of year. This is interesting because we are seeing refiners cut back gas inventories to where there is not much oversupply. On top of that, the closing of US refineries means that when US gas demand comes back we will be more dependent on gasoline imports.

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The Road  Ahead: The Economic Outlook for 2021. Join me along with Keith Fitzgerald and Stephen Moore for the keynote event at the MoneyShow on Tuesday, January 12th  It is a can't miss ...

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