Oil prices are pulling back even after reports that OPEC just can’t seem to hit its oil production targets, states Phil Flynn of the PRICE Futures Group.

Reuter’s reported that OPEC+ produced 1.45 mln barrels per day (bpd) below its production targets in March as Russian output began to decline following sanctions imposed by the West, a report from the producer alliance seen by Reuters showed. The report showed that Russia produced about 300,000 bpd below its target in March at 10.018 million bpd, based on secondary sources.

Compliance with the production cuts rose to 157% in March, from 132% in February, the data showed, the highest since the group introduced record production cuts of about 10 million bpd in May 2020 to counter the impact of the pandemic on demand according to Reuters. The report, while not a surprise, is another bullish underpinning to what already is a very bullish market. The inability of OPEC to hit production targets is a longer-term bullish factor that becomes more bullish after Biden drains our US strategic petroleum reserves.

The SPR reported that US reserves fell by 4.7 million barrels, about the fourth largest on record. It was evident by yesterday’s market action that the release from the reserve didn’t really have a big impact on the market. We did pull back a little bit after the announcement and it could mean that we’re going to see a the supply increase in this week’s inventory number, but the products should continue to fall. Reuters poll says that US crude stocks likely rose by 2.5 million bbls last week, yet that poll was taken before the SPR release was announced. The poll predicts that gasoline and distillate fuel inventories are expected to have declined by one million bbls and 900,000 bbls, respectively.

Yet with this record-breaking release from the reserves, this is the best we can do for oil prices. The Biden Administration is going to find out quickly that this release will turn out to be a big failure.

Crude Oil (CL=F) prices also got a tip after Saint Louis fed president James Bullard warned that a 75 basis point rate increase is possible. Well he said it wasn’t the base case, it was enough to get traders on guard for a potential surprise from the Federal Reserve. James Bullard of course has always been kind of a fed hawk, so it’s not surprising he would say something so exciting. Yet at the end of the day, the odds of a 75 basis rate cut is still probably pretty remote.

Our recommended long product versus short crude spreads have been working pretty well. We continue to see demand being restrained by weather on products. Winter’s refusal to leave is slowing planting down across the country. Last year at this time farmers were well ahead of schedule. This year they’re falling further behind and will be supportive to grain prices that are already surging because of the war in Ukraine.

Ukraine will not export any grain this year because of the war and their desire to feed their own people that continue to be under assault by the Russians.

Winter has also driven natural gas prices to the highest level that we’ve seen since 2008. Gasoline supplies are at a three-year low, cold weather, and record exports are going to keep this market very explosive. There are growing concerns building that natural gas supplies are going to continue to be short and this is going to keep this market very explosive. While we are overdue for a correction, the long term outlook for natural gas prices continues to be higher. The days of cheap natural gas I believe, are going to be over for a while.

Learn more about Phil Flynn by visiting Price Futures Group.