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prices are pulling back after hitting a month high on concerns about China’s economy overshadowing the growing risk to supply and a looming global supply versus demand deficit. Geopolitical risk versus financial risks continues to be the balance in this market as the US puts the blame squarely on Iran for the Houthi rebel’s act of war and the market weighs the fall-out from the Chinese financial crisis.

China’s real estate meltdown has held back oil as well as grains and silver. Reports that China thinking about a 2 trillion yuan ($278.53 billion), stabilization fund to buy shares onshore through the Hong Kong exchange link, so far have not impressed the market.

The AP is reporting that, “Iran is ‘directly involved’ in Yemen Houthi rebel ship attacks, US Navy’s Mideast chief tells AP. The Associated Press explains the details of the U.S.-led strikes that targeted Yemen’s Houthi rebels over their ongoing assault on shipping in the Red Sea. That raises the risk of a response at a time when the delays in Red Sea shipping will soon start to add to inflationary pressures as the shipping delay costs will start to hit consumers.

Reports that Libya’s oil production recovered to 1.2 million barrels a day are taking one risk factor off the table while other risk factors continue to be heightened.

One of the major factors in powering the US economy and reducing greenhouse gas emissions around the globe has been the exports of US liquefied . Climate extremists want to shut down natural gas at a huge risk to the global economy and a huge risk to the environment. Reuters reported last week that, “The Biden administration faces mounting pressure over whether to approve a massive new Louisiana LNG export project, with environmentalists saying the facility would undermine U.S. climate goals and business interests arguing it is essential for global energy security. The Federal Energy Regulatory Commission, a panel of three regulators, is expected to vote in weeks or months on approval of Venture Global’s Calcasieu Pass 2, or CP2, liquefied natural gas terminal (CP2) project.

This comes against a backdrop of continued warnings that the lack of investments in fossil fuels from OPEC and the American Petroleum Institute (API) and as the recent cold snap unmasks the fallacy of the Biden administration fantasy about the American economy being driven by all-electric cars and trucks. 

Bloomberg reported last week that API President Mike Sommers told industry officials and congressional staff that, “Washington is on the cusp of spoiling the American energy advantage, undermining it with short-sighted policies and hostility toward US oil and natural gas. OPEC warned late last year about “dire consequences” for the global economy if the world abandoned fossil fuels. Calls to cut out hydrocarbons, “set the global energy system up to fail spectacularly”, OPEC secretary general Haitham Al Ghais said. “It would lead to energy chaos on a potentially unprecedented scale, with dire consequences for economies and billions of people across the world,” he said.

Now some say that the Biden energy policies have not been a detriment to the US oil and gas industry as evidenced by record production and prices that have retreated from multi-decade highs. Yet that is short-sighted thinking and not backed up by those in the oil and gas industry.

Natural gas is trying to bottom after the post-polar plunge. Once again we are getting conflicting forecasts about the outlook for the rest of the winter. Some forecasters are predicting that we will see above-normal temperatures from here on out. Others are producing a return of the Vortex that will be more brutal than the last. Z4 Energy Research is reporting that after the polar blast, natural gas production recovered to 100.8 Bcfgpd on Monday according to BNEF.

Javier Blas at Bloomberg Is reporting that: “El Niño has peaked and temperatures in the central tropical Pacific “are now declining”, according to the Australian Bureau of Meteorology. Neutral levels are expected by June 2024.” So I guess that is climate change! OH NOOOOO! Wait! That means the climate may have been changing for millions of years. Hmmm.

Today we get the American Petroleum Institute report. We expect to see drawdowns in crude oil inventories as well as a big drawdown at the Cushing, OK delivery point. Products still may be up a little bit but we’re going to see the deficits start to continue. The numbers obviously are going to be skewered because of the impact on production because of the polar vortex. We continue to think that if you’re a user of oil products or natural gas, this is still an opportunity to put on the hedge.

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