Monday morning doom and gloom hit once again, stocks opened in bear market territory, and there are fears about what another China lockdown could do to global economic growth, states Phil Flynn of PRICE Futures Group.

The trade seems to be talking up a 75 basis point rate hike by the Fed and that seems to be weighing on oil market sentiment. Even the fact that we are losing a million barrels of oil production a day from Libya is not offsetting fears of more China lockdowns in a rising interest rate world. Yet if you need some levity, Iran is saying that that a deal with the US to save the 2015 nuclear deal was “within reach”. Yes, the same Iran that told the International Atomic Energy Agency to take a hike and restricted monitoring of atomic sites and turned off monitoring cameras. You can’t make this stuff up.

Bloomberg News reported that “China is starting to re-impose Covid-19 restrictions just weeks after major easing in key cities, raising concern the country may once again employ strict lockdowns to control its outbreak. Beijing reported 45 new local cases on Monday afternoon, after having single-digit cases on most days last week. City officials said an outbreak linked to a popular bar is proving more difficult to control than previous clusters, in a weekend that saw mass testing and rising infections both in the capital and in Shanghai. A total of 37 cases were reported for Shanghai on Sunday, including five detected in the community. There was one additional community case disclosed on Monday, with the full city results still to come.”

This is offsetting the very bullish news that Libya’s oil exports have fallen by a million barrels a day. Libyan oil production and exports dropped because their export terminals were blocked on Thursday and there seems to be no progress in reopening those ports. The world really can’t afford to lose a million barrels of oil a day but what’s making that blow a little softer, is this talk of a China lockdown. The other thing we have to watch for oil is demand destruction which we have not seen on a major scale as of yet. Goldman Sachs seems to believe that the prices have to go up a lot higher before we start to see that demand destruction set in.

Joe Biden’s answer to this is the possibility that he will go to Saudi Arabia next week for a visit. This is very embarrassing for Biden because it makes it a clear admission that his policy regarding the Saudi Arabian Kingdom was shortsighted. He goes now with his tail between his legs and begs Crown Prince bin Salman for more oil yet at the same time continues to bash the EU energy industry. Biden accused companies such as Exxon Mobil (XOM) for not making enough investments and that corporations should be required to pay taxes on their share buybacks. Yet this is the same president that has done everything he can to step in the way of domestic oil production. Biden has already raised royalty rates and has worked actively to discourage banks from investing in fossil fuel projects.

Reuters is reporting that the Midwest is at risk of power shortages for years to come. Reuters says, “The power grid operator in the Central United States warned on Friday the problems it may experience keeping the lights on this summer could also occur during the summers of 2023, 2024, and beyond. The region’s grid operator, Midcontinent Independent System Operator (MISO), has already warned of potential capacity shortfalls and other reliability concerns in parts of its territory this summer. The northern and central regions are at “increased risk of temporary, controlled outages to preserve the integrity of the bulk electric system,” MISO has said. MISO operates the grid for some 42 million people in 15 US central states from Minnesota to Louisiana and the Canadian province of Manitoba. On Friday, MISO released a survey showing it could have a potential capacity deficit of 2.6 gigawatts (GW) during the summer of 2023 depending on market responses over the next year.

Natural gas is still being impacted by the Freeport LNG Terminal explosion. EBW Analytics reports that Wednesday’s explosion at Freeport LNG could reshape the seasonal outlook for natural gas, immediately curbing 2.0 Bcf/d of demand through the end of June. At least 50 Bcf of demand shut-ins appear probable—with eventual totals potentially 50% higher. Nonetheless, bullish weather shifts adding 20 Bcf of demand and resilient bullish momentum, lifted the July contract 32.7¢ week-over-week. Recent gains, however, are likely to be tested over the seven to ten days amid a softening near-term physical market outlook. Weekly electricity demand is poised to shoot higher almost 5,000 GWh week-over-week as cooling demand spikes more than 50% (27 CDDs)—potentially adding as much as 5.0 Bcf/d in power sector gas consumption.

Learn more about Phil Flynn by visiting Price Futures Group.