Oil Prices Reach Highs As The Global Economy Reopens And Inventories Fall

June 1, 2021 12:00 PM
Global oil demand is rising and the world is more than likely headed towards an oil supply squeeze
The U.S. imported 110% more oil from Russia in March than from Saudi Arabia
Gas prices stayed strong this weekend and it looks like they’re going to stay that way
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Oil prices hit their highest level since 2018 as the global economy reopens and global inventories fall.

OPEC+ is having its virtual meeting today; the group is planning to increase output at a slower rate than the market is asking for because of an assumption that Iranian oil is coming back on the market. Despite that, reports suggest that Iran is already not complying with weapon inspectors and there’s more information coming out that could put an Iranian deal even further out of reach. 

In the meantime, global demand is rising and the world is more than likely headed towards an oil supply squeeze. Demand is recovering faster than supply: U.S. rig counts rose by only 3 last week and crude oil inventories are falling. 

The AP reports that “The United Nations' atomic watchdog hasn't been able to access data important to monitoring Iran's nuclear program since late February when the Islamic Republic started restricting international inspections of its facilities, the agency said Monday. In its May 31 report, obtained by CBS News, the International Atomic Energy Agency (IAEA) said that it has ‘not had access’ to several key pieces of information since February 23.”

While the IAEA and Iran earlier acknowledged the restrictions and limited access to surveillance cameras at Iranian facilities, Monday’s report indicated they went much further. The IAEA acknowledged it could only provide an estimate of Iran’s overall nuclear stockpile as it continues to enrich uranium at its highest level ever.

Reuters reported that “Iran has failed to explain traces of uranium found at several undeclared sites, a report by the U.N. nuclear watchdog showed on Monday, possibly setting up a fresh diplomatic clash between Tehran and the West that could derail wider nuclear talks.”

If OPEC+ stays on course and Iranian oil's comeback is delayed, that should get WTI oil solidly above $70 per barrel. Brent already is above $70. The $70 level may then try to establish as a floor once we break out of it.

In the U.S., the biggest winner from President Joe Biden’s drilling moratorium is Russia. Javier Blas, Chief Energy Correspondent at Bloomberg News, reports that “American imports of Russian crude and refined products continue to climb, reaching almost 750,000 b/d in March,” according to IEA data. To put it in context, the U.S. imported 110% more oil from Russia in March than from Saudi Arabia. 

This is increasing pressure on the Biden Administration. Reuters reports the following:

President Joe Biden’s administration expects to release results of its review of the federal oil and gas leasing program by early summer, Interior Secretary Deb Haaland said on Friday.

Biden announced the review shortly after taking office in what was widely viewed as a first step to fulfilling his campaign promise of banning new federal drilling leases to fight climate change.

Lease auctions have been paused in the meantime, upsetting the oil and gas industry and the state governments that host it, who argue the move risks killing jobs and hurting the economy.

"The oil and gas review is in process right now," Haaland said on a call with reporters to discuss the department's budget request.

"Everyone's been working really hard on it. We expect to have it released in early summer."

Haaland did not say how long the pause on lease auctions could last.

Some 25% of U.S. oil and gas production comes from federal lands and waters. The Biden review is intended to weigh the economic benefits of federal drilling against its environmental and climate costs.

Haaland's remarks came as the department detailed large increases in spending proposed by the White House on measures to address climate change, including wildfire mitigation and preparedness, permitting renewable energy projects on public lands and cleaning up abandoned fossil fuel infrastructure.

Gas prices stayed strong this weekend and it looks like they’re going to stay that way. Today’s AAA national average is starting the month of June at $3.045, as many vaccinated travelers have sucked down a lot of gallons of gasoline. We predicted early that the national average for gasoline would exceed $300 per gallon, and now that’s happened. What’s more, it looks like it’s going to stay there.

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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.