The petroleum markets are suffering from supply side blindness and the recent drop in oil prices is going to become a problem for the global economy. The market has ignored historic low, spare oil production capacity issues because of the placebo of Strategic Petroleum Reserve supplies that have been fed into the market without much thought to how that would interfere with market dynamics. Yet now we could be paying the price for short sighted market manipulation as a major supply outage, if it continues, could leave the globe undersupplied.

Because of a political dispute, 400,000 barrels a day of Iraqi production has been shut down. Despite hopes for a quick resolution, it appears that both sides are digging in their heels and we are seeing signs that producers are shutting in production. 

As Reuters reported, "Turkey stopped pumping Iraqi crude from the pipeline after Iraq won an arbitration case in which it said Turkey had violated a joint agreement by allowing the Kurdistan Regional Government (KRG) to export oil to Ceyhan without Baghdad's consent.  Oil firms operating in the KRI are being forced to halt output or move production into storage, which many say will reach capacity within days, as talks drag between Turkey, Baghdad and the KRG to resume exports.

The longer the dispute goes on, the longer it will take to restart production and this will create a supply side shortage that will cause major crude oil supply to draw in the US and around the world. Vindictive energy policy in the United states especially against oil and gas firms and using the Strategic Petroleum Reserve for political purposes has conspired to discourage investment in oil and gas. Because of that, the average American is going to pay more and be less protected against supply outages in other parts of the world.

A perfect example of this short-sighted policy is the auction of new oil leases in the Gulf of Mexico on Wednesday. Development of Gulf of Mexico oil, the cleanest oil production and the world has been stymied by the Biden administration in another short -sighted attempt to show virtue on the issue of climate change. Biden’s blocking of Gulf of Mexico oil leases has not made the world cleaner, but it's added to greenhouse gas emissions.

It is clear this administration does not take science into account when it comes to climate change. It’s not about science, it's about politics. It's about power and it's about money. Biden, to get Senator Joe Manchin to go along with his “inflation reduction act” that does little or nothing to lower inflation, gave in and allowed this auction to happen. The problem is that the auction did not go as well as some would expect because oil and gas companies do not trust this administration. Only a very small percentage of what the Interior Department Bureau of Ocean Management put up for auction, which was 73.3 million acres in federal waters, were bid on.

Bloomberg reported that, "The European Commission told member states that a $60-a-barrel cap on the price of Russian oil is proving effective in hurting the Kremlin’s access to petrodollars while not disrupting the market and will remain unchanged for now. The EU may try to convince themselves that the price cap is working but the fact is that it has not been challenged and Russia is having no problem selling oil.   

The oil market is getting back most of its banking crisis sell off losses. I'm afraid it's going to be a wakeup call for oil and gas markets over the next couple of weeks, so buckle up and make sure you're prepared for what could be a pretty substantial price spike. 

Natural gas prices continued to get crushed as production in the US and India exceeds expectations while demand has fallen because of a warmer than normal winter in many parts of the globe. The Freeport LNG criminal course was one of the major factors in pressuring US gas prices lower and now it's getting very difficult for this market to find a bottom. If you look at the back end of the curve it looks a lot more healthy and we do believe that supplies of natural gas will tighten in the future but right now it's very difficult to play this market for a long term play.

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Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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