Oil prices got a nice pop on Sunday night on reports that Israel sent drones to attack an Iranian military factory, states Phil Flynn of PRICE Futures Group.

This came just after a 5.9 earthquake hit on the Iranian-Turkey border. Coincidence? Yes, but still earthshaking. Will it be enough to shake the oil market out of its slumber?

After an early Sunday night opening price pop, we started to drop on a risk-off trade as there is a lot of news this week that the trade fears can be earthshaking. OPEC plus has a virtual meeting on February first and the Federal Reserve is due to announce interest rates on Wednesday, making the markets a bit nervous. OPEC is not expected to shake things up and is widely expected to roll over its current production cuts. The Fed's decision on interest rates really should not be too much of a surprise even though there are some like Dennis Gartman who believe that the Fed will cut by 50 basis points as opposed to the 25 basis cut that the market expects. Mr. Gartman believes that they feel inflation is still a risk based on Fed statements.

Perhaps it is because they see gasoline prices that have been soaring because of increased demand and low refining capacity and the fact that the market must adjust to the reality that Biden’s SPR releases have ended. Triple AAA says that gasoline prices are at 3.508 a gallon. That is up from $3.423 a week ago and up from $3.363 a year ago.

It’s not just gasoline that is surging. AAA says, “Diesel prices are at 4.676 which is up from 3.908 a month ago and up from $3.717 a year ago. The trend of gas and diesel should continue higher after Exxon Mobil (XOM.N) pushed back its restart of the Beaumont, Texas, refinery, which has been trying to finish a $2 billion expansion that will make it the second largest in the United States. Right now the market really needs 250,000 barrels per day of all new supplies for the refined products market.

Another concern for oil is the risk that will come with EU sanctions on Russian oil and products that starts on February 5th and that is when the embargo on buying Russian oil starts. This should be a bullish act even if it does not cause the oil supply to tighten overnight. The International Energy Agency executive Fatih Birol says Russian oil output could fall by a million barrels a day in 2023. Now when the SPR releases end, the market will feel a bit of a shock as it could not adjust because of Biden’s misuse of the reserve.

The House is trying to respond to Biden’s misuse and abuse of the Strategic Petroleum Reserve. Reuters reported that “The US House of Representatives passed a bill on Friday limiting the ability of the energy secretary to tap the strategic oil reserve without developing plans to increase the number of public lands available for oil and gas drilling. Representatives backed the bill 221 to 205, with support from only one Democrat. Joe Biden would veto the legislation should it pass Congress, the White House said this week. The bill is expected to face an uphill battle in the Senate, which, unlike the House, is controlled by Biden’s fellow democrats according to Reuters.

Democrats famously blocked President Trump’s attempt to refill the Strategic Petroleum Reserve (SPR) at about $24.00 a barrel. I wrote at the time that would prove to be a mistake that has cost the taxpayers dearly. Now with Biden using the SPR to manipulate the market for political purposes to lower gasoline prices as he released oil even before the war in Ukraine started, it is starting to backfire and we’re seeing that at the gasoline pump as prices start to rise. It’ll be interesting to see if Biden takes credit for the increase in gas and diesel prices that no doubt Americans are feeling right now.

While gasoline prices and diesel prices are up, we’re actually seeing a break in fertilizer prices which is good news considering the fact that we’re entering a period of extremely tight supplies of grain. Warm temperatures have eased natural gas prices and even though natural gas is popping on a return of cold weather, this morning the drop in prices helps fertilize prices come down.

One of the fuels that have fallen is E85 and if you look at the market that is heavily subsidized, it seems to be the cheapest fuel around. Just forget the fact that you don’t get as much bang for your buck as far as mileage goes. Biden is throwing more money at Agra fuels at a time when food supplies globally are very tight. Grain prices are already high and could get much tighter. Reuters reports that “Chicago soybeans and corn rose on Monday on concern that drought-damaged crops in Argentina were facing more dry weather. Wheat rose as a cold snap in US grain belts generated concern about possible crop damage, while potential escalations in the Russia-Ukraine war also underpinned prices.

So with food and fuel supplies being the tightest they’ve been almost ever globally, with global spare production capacity for oil nonexistent the risk for commodities is still very much to the upside. Those who were doubting the Chinese reopening are reassessing their earlier predictions we believe that now it’s a good time to put on your hedges going into winter. Even the natural gas market that saw a sea change in fundamentals due to a warm winter, as well as a shutdown of the major export terminal Freeport, could start to find some bottoming action here over the next couple of days.

Learn more about Phil Flynn by visiting Price Futures Group.