Global oil markets are having a hard time determining whether they should worry about the economy, states Phil Flynn of PRICE Futures Group.

Is it too hot or too cold? Red hot inflation data in the US sent the stock market tumbling and weighed on oil even though there are signs of an increase in risk to supplies. Over the weekend, a sign of what may be more to come, Russia cut oil flows to Poland, following through on their threat to not sell oil to any country, directly or indirectly, involved with the EU price cap.

Later, Russian oil pipeline monopoly Transneft on Monday said there were no flows of oil to Poland because the paperwork for supplies in the second half of February had not been completed, Russia’s TASS news agency reported. Yet the reality is that this is Russia’s first shot across the bow and should serve as a warning to those that ideally dismiss Russia’s threat not to sell oil. It should also serve as a warning to the grain trade as well.

While the US sends record amounts of oil and gas to Europe, there are signs that because of low natural gas prices and the Biden administration’s selling of Strategic Petroleum Reserves supplies, US oil and gas drillers are pulling back. Reuters reported that "US energy firms in February cut the most oil and natural gas rigs in a month since June 2020, with the gas rig count falling to the lowest since April," energy services firm Baker Hughes Co. (BKR) said in its closely followed report on Friday. The oil and gas rig count, an early indicator of future output, fell seven to 753 in the week to Feb. 24. Despite this week’s rig decline, Baker Hughes said the total count was still up 103 rigs, or 15.8%, over this time last year.

There are true signs in the marketplace right now that the Biden administration’s unprecedented intervention of releasing Strategic Petroleum Reserve supplies is going to leave the market short later in the year. The market has become dependent on strategic reserve supplies like a drug addict is on drugs. It will start to be painful when they start to realize that there are no more supplies from the SPR. Losing the SPR release is like losing the 16th biggest oil producer in the world and that’s going to be felt especially when the US refiners start to come out of maintenance. The foolishness of these policies will be very apparent later in the year.

One of the most bullish factors for oil continues to be the reopening of the Chinese economy. S&P Global Platts reported that China’s small independent refineries doubled their fuel oil imports the month in February amid good refining margins and a tight supply of the alternative feedstock bitumen blend, refining, and trading sources told S&P Global Commodity Insights on Feb. 27.

Learn more about Phil Flynn by visiting Price Futures Group.