Crude oil prices are as erratic this morning as Biden’s foreign policy states, Phil Flynn of the PRICE Futures Group.
The administration is considering sending troops to Europe to counter a threat by Russia against Ukraine. Biden is thinking about increasing US troop presence in more Baltic countries. This would be a significant decision and raises the stakes for the United States as well as the global economy when it comes to energy. Russia this morning is warning that if the US deploys more troops in Eastern Europe and the Balkans, Russia will respond accordingly.
The Wall Street Journal reported that, “The State Department instructed the families of US diplomats in Ukraine to leave the country and authorized some embassy staff members to also depart, while the Biden administration considers sending several thousand troops to Europe amid a Russian military buildup. The State Department decision, announced Sunday, comes as US officials have warned that an attack could come at any time.
Russia seems to sense the weakness of this administration that was on full display with the disastrous failure of the Afghanistan pullout that was done because of a decision by Biden, as he ignored the warnings of his top military advisors. That poor decision left 13 American soldiers dead, and so there are real worries about a potential escalation in Europe with US troops. Even Biden’s supporters admit that his track record of decisions like this have been wrong. Whether it be the reluctance to take out Bin Laden and his opposition support for wars in Iraq. There have been many.
Oil prices and European natural gas prices were on fire as the concerns about a war between Ukraine and Russia are raising and that supplies could be cut off. In the UK papers over the weekend, they seem to suggest that that could be the case. The oil markets calmed down a bit after the Kremlin came out overnight and dismissed media reports that Russia will stop gas supplies to Europe if sanctions are imposed. They called it “false panic.”
Iran also reported overnight that we are closer than ever to reaching an agreement on the nuclear deal. The Biden administration, of course, has done everything they can to get Iran back into the nuclear deal; and in the past when Iran said that they were close to a deal, they really weren’t. The bottom line is will the Biden administration give in to Iranian demands just to get a deal. Let’s face it, they need a win and they will take whatever they can get. Their poll numbers are obviously horrid and with good reason. And on that note, the Iranian-backed Houthi rebels allegedly shot more missiles into the UAE that were shot down by anti-missile technology provided by the United States of America last week. The rebels took responsibility for killing three people with missiles in the UAE.
Geopolitical risk has brought the market higher at a time when we’re seeing signs that demand is going to exceed supply. Oil seemed to take a hit when the stock market got shaky this morning. Overseas markets went down. We’ve seen a big risk-off in the cryptocurrency space and that has at times shaken the confidence of the oil market this morning. Let the market keeps bouncing back because the fundamentals for the oil market are extremely bullish. We see demand going up, we see supply struggling, and at the same time we see geopolitical risk factors extremely high.
The head of Saudi Aramco Amin H. Nasser overnight is telling the market that global oil demand is approaching its pre-pandemic levels. Those demand expectations are also going up as Anthony Fauci over the weekend said that the omicron variant is starting to get under control and that we could be in the final quarter of the Covid-19 pandemic. He’s saying that it could be something that we’ll just have to live with just like other respiratory diseases. If that’s the case, we would expect demand to continue to surge as we get another round of the reopening trade.
We think the stock market worries are going to give way to the realities of tight supplies. Seasonally, this is weak gasoline demand time and we’re looking for some draws. Look to buy breaks and put on hedges.
EIA Analytics reported that, "February natural gas swung 60.4¢ in 24 hours—rapidly retreating from $4.385 to $3.781—as weather models weakened the early-February cold outlook and signaled a likely transition away from the cold pattern supporting the January rally in natural gas futures." In the immediate term, the coldest week of the year is lifting demand, continued freeze-offs curtailing supply, and likely volatility ahead of the February contract final settlement may all lead to the possibility of a mid-week price pop higher. Notwithstanding a nearly 700-Bcf cumulative withdrawal over the next three Weekly Storage Reports and emerging storage deficits vs the five-year average, however, fading demand is likely to lead natural gas futures lower after March becomes the front-month on Friday.
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Learn more about Phil Flynn by visiting Price Futures Group.
