Oil traders in a light market, seem quick to jump on headlines, says Phil Flynn of the PRICE Futures Group.
After peace talks in Turkey, Russia promised to scale down military operations around Kyiv. It seems like oil traders are easily influenced by peace headlines even though the United States Pentagon warned not so fast. While Russia has started moving very small numbers of troops away from positions around Kyiv, the Pentagon says that it was more of a repositioning than a retreat or a withdrawal from the war.
Some pointed to progress when Ukrainian President Volodymyr Zelenskyy moved to an open status from a neutral status for his country and a “compromise” on the contested Donbas region as part of peace negotiations with Russia. Yet the oil market’s optimism about this process seems to be based on hope and not the reality that Russia is not ready to give up on this mad murderous adventure just yet.
Oil is also getting support from strong American Petroleum Institute (API) data as well as an OPEC report that they see the globe’s first-quarter surplus of oil as smaller than expected. In other words, we may see a deficit which I argue is already happening. Global oil inventories continue to fall. The API reported draws across the board. They showed crude down three million barrels even with Joe Biden's SPR releases. We also saw a 215,000 drop in distillate stocks. Gasoline inventories also fell by 1.357 million barrels. Many traders are looking at Cushing, Oklahoma, where supplies have been falling close to the minimum operating levels.
The API did show a draw of 1.061 million barrels. This is another factor that could support crude.
The key thing for oil is what is real and what is smoke and mirrors. Whether peace talks are real or not, the truth is that we have a global market that is undersupplied regardless. Oil prices put the war premium in and they take it out but after the smoke clears, and we’re back to being undersupplied. When many were in the depths of the Covid shutdown, many people predicted that demand would be gone forever.
We were telling people to get hedged for the coming energy crisis.
While we could take out some war premium or see a big sell-off after a proposed Iran nuclear deal, the truth is that the green energy movement and the demonization of the fossil fuel industry have left the industry underinvested and starving for capital. A quick fix is not possible without a massive capital infusion, which is not likely to happen. That is especially true in the US under the Biden administration’s anti-fossil fuel agenda.
That agenda led to an energy crisis in Europe. Reuters reported that, “Germany triggered an emergency plan to manage gas supplies on Wednesday that could see Europe’s largest economy ration power if a standoff over a Russian demand to pay for fuel with rubles disrupts or halts supplies. Moscow’s insistence on ruble payments for Russian gas that has met a third of Europe’s annual energy needs has galvanized other European states: Greece called an emergency meeting of suppliers, the Dutch government said it would urge consumers to use less gas, and the French energy regulator told consumers not to panic.
Learn more about Phil Flynn by visiting Price Futures Group.