OPEC+ Looking To Drive Up Prices After Covid-19 Losses

June 9, 2021 01:00 PM
It’s been reported that they lost over a trillion dollars due to the Covid-19 pandemic
The same oil market that expressed optimism for how Iran’s oil would hit as demand ramps up this summer may now be faced with a looming shortage
Natural gas is breaking out as global demand is surging
Energy Report

Energy Report

The Phil Flynn Energy Report 

Trillions of Reasons

There are a trillion reasons why OPEC+ wants to drive up prices, but it's mainly because they've lost an incredibly significant amount of money due to the Covid-19 pandemic. Most OPEC+ producers view it as their right to drive up prices to get that money back, and with the U.S. shale sector being held back, they’ll probably make that back and then some.

Iran sanction relief looks further out in the future, if at all. Reuters reported the following:

Oil prices rose on Tuesday, settling at the highest in more than two years after the top U.S. diplomat said that even if the United States were to reach a nuclear deal with Iran, hundreds of U.S. sanctions on Tehran would remain in place.

That could mean additional Iranian oil supply would not be re-introduced into the market soon.

"I would anticipate that even in the event of a return to compliance with the JCPOA (2015 Joint Comprehensive Plan of Action), hundreds of sanctions will remain in place, including sanctions imposed by the Trump administration," U.S. Secretary of State Antony Blinken said. read more

Brent crude rose 73 cents, or 1%, to close at $72.22 a barrel, the highest it has settled since May 2019. U.S. West Texas Intermediate oil rose 82 cents, or 1.2%, to settle at $70.05 a barrel, highest since October 2018.

Blinken is looking at the reality of the situation and saying even if we do get a deal, there’s a long way to go," said Phil Flynn, senior analyst at Price Futures Group in Chicago. "All those people expecting a flood of oil are going to be disappointed." 

The United States told Iran on Tuesday that it must let the U.N. atomic agency continue to monitor its activities, as laid out in an agreement that has been extended until June 24, or put wider talks on reviving the Iran nuclear deal at risk.

Barriers to the revival of Iran's nuclear deal remain ahead of talks due to resume this week between Tehran and world powers, four diplomats, two Iranian officials and two analysts told Reuters.

So the same oil market that expressed optimism for how Iran’s oil would hit as demand ramps up this summer may now be faced with a looming shortage. With China still in maintenance, there may be some time to adjust but not much.

S&P Global Platts reports that “Crude throughputs at China's independent refineries in eastern Shandong province fell 1.3% month on month to 2.38 million [barrels per day (bpd)] — or 10.05 million mt — in May, marking a 14-month low amid heavy maintenance despite refining margins having risen, according to data from local energy information provider JLC June 9.” 

Regardless, China needs oil and is already feeling the impact of skyrocketing commodity prices. Get ready for more support from self-imposed “peak oil" production.
The Wall Street Journal reports the following:

Royal Dutch Shell PLC said it would accelerate its efforts to cut its carbon emissions in the wake of a Dutch court ruling last month ordering the oil giant to take more drastic action.

In a post on LinkedIn on Wednesday, Chief Executive Ben van Beurden said Shell disagreed with the ruling and still expected to appeal the court’s order to curb emissions by 45% by 2030, but nonetheless would rise to the challenge of doing more.

“Now we will seek ways to reduce emissions even further in a way that remains purposeful and profitable. That is likely to mean taking some bold but measured steps over the coming years,” Mr. van Beurden said.

Shell in February set out plans to gradually reduce its oil output by 1-2% a year and expand in areas including electricity and biofuels. Other big oil companies have pledged to reduce their dependence on fossil fuels and invest more in low-carbon energy amid growing pressure from activists, investors, and governments.

Just another reason why the globe is headed toward an oil price shock. The Energy Information’s Administration is predicting that gasoline prices will moderate and fall. I do not agree.

The EIA reports on the 2021 April-September summer driving season:

[W]e forecast U.S. regular gasoline retail prices will average $2.92 per gallon (gal), up from an average of $2.07/gal last summer. The higher forecast gasoline prices reflect higher crude oil prices and higher wholesale gasoline margins. Wholesale gasoline margins have risen as a result of relatively low inventories and rising gasoline demand. Margins also temporarily widened because of outages on the Colonial Pipeline.

These developments caused U.S. average regular gasoline retail prices to reach a monthly average of $2.99/gal in May, peaking at $3.03/gal on May 17, which were the highest monthly and weekly prices since 2014. We expect that prices will average $3.03/gal in June before falling to $2.76/gal by September. 

The drop in forecast retail gasoline prices reflects our forecast that gasoline margins will fall this summer in response to rising refinery utilization. For all of 2021, we expect U.S. regular gasoline retail prices to average $2.77/gal and gasoline retail prices for all grades to average $2.87/gal. Higher prices and more gasoline consumption would result in the average U.S. household spending about $570 (38%) more on motor fuel in 2021 compared with 2020.

Natural gas is breaking out as global demand is surging! So much so, in fact, that the world will have to rely more on coal. Where are those windmills when you need them most?

My summer outlook is still for sharply higher prices. Look to get hedged and stay hedged as we have significant upside risk. U.S. shale could’ve saved the day, but with restraint by producers, lack of capital, and the new fossil fuel stigma, we expect Americans to be paying for climate policies in a big way, and quickly.

Don’t miss out on my wildly popular trade levels on all major markets, as well as special subscriber-only updates. Call me at 888-264-5665 or email me at pflynn@pricegroup.com.

About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading 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.