The Phil Flynn Energy Report
The crude oil market is breaking out and commodities are hot! And they’re the place to be in 2021. Oil prices are the highest since March on reports that OPEC+ will show restraint and not increase oil output like the market was expecting. We’re also getting strong overall commodity sentiment as funds look to get long and rebalance. It appears that OPEC+ is recognizing the reality of more Covid-19 lockdowns and that perhaps it isn’t the time to be raising production just yet. The OPEC Secretary-General Mohammad Barkindo on Sunday warned about the downside risk for the oil outlook in the first half of 2021 and it appears the members might heed that warning. In recent weeks Russia has suggested that they want to raise production by 500,000 barrels a day in February, but now the market is pricing in the fact that that may not happen.
Oil is also getting support from geo-political threats. Bloomberg News reported that, “The USS Nimitz will remain in the waters in and around the Arabian Sea, U.S. Acting Secretary of Defense Chris Miller says in a statement, following what he said were recent threats from Iranian leaders against President Donald Trump and other U.S. officials.”
Reuters reported that Venezuela’s oil exports hit their lowest level since the 1940s, falling by 376,500 barrels per day (bpd) in 2020 and financially squeezing socialist President Nicolas Maduro. U.S. sanctions along with Venezuelan corruption are killing the once great oil company.
Venezuela is now going to go all out on cryptocurrency. Bloomberg reports that Venezuela’s government is planning to move to a fully digital economy as hyperinflation has made worthless bolivar notes practically disappear, and dollarization expands through the local financial system. The U.S. Dollar has operated as an escape valve for Venezuela amid U.S. sanctions and collapsing oil revenues, President Nicolas Maduro said in a televised interview with Telesur on Friday. He said 18.6% of all commercial transactions are in USD, while 77.3% are carried out in bolivars with debit cards. Only 3.4% are paid with bolivar notes.
“They have a war against our physical currency. We are moving this year to a more profound digital economy, in expansion. I’ve set the goal of an economy that’s 100% digital,” Maduro said, adding that physical money will eventually disappear.
It’s the latest ambitious currency plan from Venezuela’s president, with no guarantee of success. In 2017, with the bolivar in freefall, Maduro vowed that the nation would create a cryptocurrency called the Petro, backed by reserves of oil, gas, gold, and diamonds. The Petro launched in 2018; the U.S. called it a scam. Venezuela’s currency has lost 99% of its value during 3 years of hyperinflation, forcing the country to issue higher-denomination notes that in turn becomes useless in record time. Inflation soared 5,790% in the last 12 months, according to Bloomberg News’s Cafe con Leche Index. The largest note now in circulation, 50,000 bolivars, is worth about $0.04. The government has delayed plans to issue a 100,000 bolivar bill, which currently would be worth less than $0.10.
Natural gas is making a comeback as forecasts for spring in January are now becoming a little less spring-like. Andrew Weisman of EBW Analytics says that, "NYMEX natural gas went through wild swings over the holidays, and could continue to do so this week. The period just before Christmas saw a major weather forecast bust, with model runs abruptly turning much warmer—sending gas prices down sharply.”
Since the New Year’s break began, however, weather models have repeatedly added gHDDs, reversing much of the pre-Christmas loss. There are increasing signs that temperatures could turn even cooler later this month, driving natural gas prices up by 20 cents or more.
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