Thwarted Attack On Saudi Oil Facilities Gives Oil Markets 'An Incredible Ride'

March 8, 2021 11:30 AM
There was no damage or loss of life from the Saudi oil attack and the market calmed, yet the underlying bullish factors still exist
With stimulus hopes rising and the reopening trade underway, the crude oil market should continue to get a bid
Natural gas largely held its ground, with the April contract suffering only modest losses
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Energy Report

 

The Phil Flynn Energy Report 

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An attempted drone strike on Saudi Arabia’s Ras Tanura export terminal was thwarted when Saudi Arabian forces shot down the drone, but it was enough to give the oil markets an incredible ride.

Global oil prices were already supported by last week’s OPEC+ decision to roll over production cuts and were trading at the highest levels since January of 2020, then extended those gains with a pop and then a drop.

There was no damage or loss of life from the attack and the oil market calmed, yet the underlying bullish factors still exist. Sometimes when we have an event like the failed strike on the Saudi facility, it has the potential to add to speculative volatility.

With stimulus hopes rising and the reopening trade underway, the crude oil market should continue to get a bid. From an oil demand standpoint, we’re seeing that things are already on track to see demand exceed pre-pandemic levels later this year. 

In the U.S., gasoline demand is starting to snap back. My buddy Patrick De Hann at Gas Buddy says that according to GasBuddy data, U.S. gasoline demand jumped 5.9% for the week ending Saturday, pushing demand to the highest it’s been since Covid-19 began for the second straight week. Now with the possibility of more stimulus checks getting mailed out, that number could climb higher.

Oil inventories should start to fall again this week with an expected 4-million-barrel drop. Gasoline supplies should also fall by 2.0 million barrels and distillate by 2.5. Refinery runs should uptick by 3.0. We’ve predicted a massive tightening of supply, and it’s finally here.

Natural gas is holding up well. Andrew Weissman of EBW Analytics says that despite a huge bearish storage miss last week, with EIA reporting a draw of 98 Bcf (35-40 Bcf below most estimates) and forecasts for much warmer-than-normal weather this week, natural gas largely held its ground, with the April contract suffering only modest losses. 

This week’s price movements, like last week’s, will depend heavily on near-term shifts in the weather forecast. Mid-day model runs call for slightly cooler-than-normal weather during the coming 6- to 15-day period. If this cooler trend persists, natural gas prices could stabilize or post small gains.

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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.