Oil Comes Roaring Back As Demand Expectations Rise

August 25, 2021 12:00 PM
The crude oil market regained most of its losses after a big 7-day swoon
Higher gas prices may be on the horizon
China’s reopening should give oil a big demand boost
Energy Report

Energy Report

The Phil Flynn Energy Report 

The Highway

It's Biden's way or the highway! Forget all that malarkey about working with allies, it's the U.S. first, or maybe Biden first. Despite a meeting with our G7 allies, President Biden refused to extend the deadline to rescue Americans and our allies. He fears that his actions could lead to a terror attack if he doesn’t adhere to the deadline the Taliban set. 

Joe Biden says that after he decided to abandon Afghanistan without our allies’ input, he now says that he will “stand shoulder to shoulder” in future action over Afghanistan and the Taliban. Though it might be too late for that, he now says that the risk of terror attacks is too great to the 5,800 U.S. troops at Kabul’s airport beyond the end of the month.

Oil came roaring back! The crude oil market regained most of its losses after a big 7-day swoon. Demand expectations are rising as the threat of Covid-19 in China is passing and its ports are reopening. There are expectations that pent up demand in China may offset demand losses in Japan, another Covid-19 hot spot. Argus Media reports, "China's airlines are starting to resume some previously suspended flights in a short-term boost for domestic jet fuel demand, as some Chinese cities reduce the number of higher risk Covid-19 regions to medium or low risk.”

Oil prices also saw support from the platform fire in the Gulf of Mexico. Today, Bloomberg is reporting that “Petroleos Mexicanos plans to resume full crude production by Monday after an offshore platform accident that cut the company’s output by a quarter. About 71,000 barrels a day has already restarted.”

From the supply side, things are still supportive. MarketWatch reports the following:

The American Petroleum Institute reported late Tuesday that U.S. crude supplies fell by 1.2 million barrels for the week ended Aug. 13, according to sources. The API report also reportedly showed an inventory decline of 1.2 million barrels for gasoline, while distillate supplies edged up by 502,000 barrels. Crude stocks at the Cushing, Okla., storage hub, meanwhile, fell by about 1.7 million barrels for the week, sources said. Inventory data from the Energy Information Administration will be released Wednesday. On average, the EIA is expected to show crude inventories down by 3.1 million barrels, according to a survey of analysts conducted by S&P Global Platts. The survey also calls for a supply decline of 2.3 million barrels for gasoline, while distillate stocks are expected to rise by 700,000 barrels. September West Texas Intermediate crude clu21 was at $66.55 barrel in electronic trading, after settling Tuesday at $66.59 on the New York Mercantile Exchange.

Peak gas demand? Maybe, but it won’t happen without much higher gas prices. Reuters reports:

The fourth-largest U.S. refiner Phillips 66 (PSX.N) on Tuesday said it has put the smaller of its [2] Louisiana refineries up for sale amid continued losses and an uncertain future for motor fuels.

The company is holding talks with a potential buyer on the sale of its 255,600 barrel-per-day (bpd) Alliance refinery in Belle Chasse, Louisiana, according to [2] people familiar with the matter. The identity of the potential buyer could not immediately be learned.

U.S. refiners have closed or sold oil processing plants as the Covid-19 pandemic slashed demand for gasoline and jet fuel, generating losses for the industry.

Top automakers are accelerating their shift to electric vehicles, signaling tougher times ahead.

My advice is to fill up your tank.

China’s reopening should give oil a big demand boost. More than likely, OPEC+ is going to delay its production increase at its meeting next week. Keep an eye on OPEC+ news. The bottom for oil should be in, so buy breaks.

Natural gas is looking good. Late heat waves along with subpar production should give futures a boost.

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.