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The Energy Report

Phil Flynn
http://www.pricegroup.com/
pflynn@pricegroup.com


Revolutionary Retreat. The Energy Report 10/06/2022

One might say that Biden retreated and then lost the shale revolution. He turned his back on U.S. oil and gas producers, canceled the Keystone Pipeline, put on drilling moratoriums and discouraged investment in all fossil fuels. He then looked to other countries to make up for our supply deficit. Biden thought he could use his clumsy foreign policy and make Saudi Arabia a pariah state, at the same time expect them to jump whenever he asked them to raise oil production.

Yet now his diplomatic blunders have resulted in OPEC and Russia slapping the administration in the face and ignoring their calls for restraint. The cartel, along with Russia, instead cut oil production by two million barrels a day. The real cuts are around 800,000 barrels a day but it doesn’t matter. The fact is that OPEC and their co-conspirator Russia has regained control of the oil and gas market. They have also regained the ability to stick their nose up at the Biden administration and not fear reprisal from rising U.S. oil and gas production.

Biden, instead of admitting his diplomatic and strategic defeat, is blaming Saudi Arabia and claiming that they are aligning themselves with Russia. Well, the truth is that Russia and Saudi Arabia had been cooperating on oil production here for the last couple of years. They’ve had a relationship that was bound by oil but still had a lot of mistrust. Saudi Arabia, for all its many failings, still had the United States back when push came to shove, especially in the Iraq war years. If Saudi Arabia aligned with Russia, it’s only because Biden forced them into that marriage.

Now I am not saying that Crown Prince bin Salman should not have been taken to task for the assassination of Jamal Khashoggi, a Saudi dissident journalist who was assassinated by agents of the Saudi government at the Saudi consulate in Istanbul, Turkey. What I am saying is that Biden could have found a way reprimand Saudi Arabia and punish them but not in a way that would cause the US and Saudi relationship to split. Whether you like it or not Saudi Arabia has been a key ally of the United States since World War II.

Biden seems more interested in getting close to Saudi Arabia’s nemesis Iran and now he also wants to get closer to another despot, this time in Venezuela. The Wall Street Journal wrote, “The Biden administration is preparing to scale down sanctions on Venezuela’s authoritarian regime to allow Chevron Corp. CVX to resume pumping oil there, paving the way for a potential reopening of U.S. and European markets to oil exports from Venezuela, according to people familiar with the proposal. In exchange for the significant sanctions relief, the government of Venezuelan President Nicolás Maduro would resume long-suspended talks with the country’s opposition to discuss conditions needed to hold free and fair presidential elections in 2024, the people said. The U.S., Venezuela’s government and some Venezuelan opposition figures have also worked out a deal that would free up hundreds of millions of dollars in Venezuelan state funds frozen in American banks to pay for imports of food, medicine and equipment for the country’s battered electricity grid and municipal water systems.

U.S. officials said details are still under discussion and cautioned that the deal could fall through because it is contingent on Mr. Maduro’s top aides resuming talks with the opposition in good faith.” Good luck with that. Dealing with dictators as opposed to dealing with US energy producers has been the mantra of the Biden administration.

The Biden team put out a press release saying that, “The President is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine. At a time when maintaining a global supply of energy is of paramount importance, this decision will have the most negative impact on lower and middle-income countries that are already reeling from elevated energy prices.”

Yet I think we can argue that really it was the shortsighted energy policies of the Biden administration that put us in this position. Fox Business reported that, “Executives from the American Petroleum Institute and American Fuel and Petrochemical Manufacturers wrote a letter to Energy Secretary Jennifer Granholm on Tuesday, urging the Biden administration to take an oil export ban off the table amid high energy prices.”

The Biden administration continues to say that there are policies that are looking forward but when it comes to their energy policies, they continue to bring up the failed energy policies of the 1970s with price caps and export ban on oil products. Export bans will only cause shortages and higher prices for Americans. The export ban could be a disaster and it’s time that the Biden administration back off their war on American energy and restart the Keystone XL pipeline, speed drilling permits and encourage investment in U.S. oil and gas.

Oil prices are back in an uptrend and will be supported by the OPEC production cut. In the short term, we could see some headwinds from a strong dollar in rising yields but a retest of 90 should be in the cards eventually. I believe that we will break out above 90 and get back to over $100 a barrel. After some extremely bullish data from the EIA yesterday that showed gasoline demand and distillate demand surging, it’s very important that the users of oil and gas stay hedged. Diesel hedgers were very happy after the incredible move that we had up yesterday.

Natural gas prices are still struggling in the short term against seasonal factors but the long-term fundamentals from natural gas look very strong. Seasonal maintenance at LNG export terminals will soon come to an end and that should resume the uptrend. Oh and it could help if we get our first blast of winter.



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Phil is one of the world's leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide.

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