Mama said there’ll be days like this, and we did too as the oil market is pulling back from a case of too much bullishness. Oil was up above the Bollinger band and being very overbought could not stand alone against a backdrop of a plunging stock market and a mixed Energy Information Administration (EIA) supply report that was weighed down by a bearish gasoline supply reading. Even fears that Russia might accept Biden’s invitation to make a “small incursion” into Ukraine were put on the back burner as crude oil started a sell-off that brought down products that held up pretty well for the bulk of the official trading session. With earnings and Fed fear about increasing interest rates, the key for oil is whether it can ignore the headwinds of a potentially slowing economy while the global supply available to meet demand numbers looks bleak.
Bloomberg News reported that, “The IEA is trying to figure out where 200 million barrels of oil went. The adviser to energy-consuming nations said on Wednesday that observable global oil inventories plunged by more than 600 million barrels last year. That would be fine were it not for the fact-based on its estimates of supply and demand — that the decrease should only have been 400 million. There is always a gap between the two, but the 200-million-barrel discrepancy means the oil market could be tighter than previously thought. The gap could be a result of underreporting of demand or over-reporting production, the IEA said. Its monthly report is a benchmark for traders trying to evaluate the balance between supply and demand the world over. “A retrospective view shows the difficulty over the past two years of reliably analyzing and forecasting supply and demand,” the agency said on Wednesday. “Lessons learned will improve the work in 2022 and allow us to better understand our market.”
Well, I have contended for some time that based on what I see, the IEA has underestimated oil demand on a consistent basis. I assumed it was because the agency represents oil-consuming nations and that underestimation usually caused oil prices to dip, allowing those countries to buy oil cheaper. I also believe that the IEA has drifted away from its original mission and has become more of a quasi-political organization than an oil reporting agency. I also have questioned why the market reacts to their long-term reports because they have been wrong and consistently wrong when it’s come to predicting future oil demand trends.
The IEA also has been complicit in creating an environment that restricts the flow of money into new oil and gas projects. They have given the impression that somehow the world can become carbon neutral by the year 2050 but only if we stop all investment in fossil fuels. Of course what we are seeing is the fallout from the lack of investment in fossil fuels and fossil fuel projects and it’s creating a lot of problems throughout the globe. One of the main problems is that the International Energy Agency and the countries and the Paris climate accord, as well as the Biden administration, is betting our energy future on technologies that don’t exist.